Hasbro Inc. (HAS) posted second quarter 2014 results with both earnings and revenue missing the Zacks Consensus Estimate. Adjusted earnings per share of 36 cents missed the Zacks Consensus Estimate of 37 cents by a penny. However, earnings per share were up 24.1% from 29 cents reported in the year-ago quarter driven by higher year-over-year revenues and lower share count.
On a reported basis, including favorable tax adjustments, the company posted earnings per share of 26 cents, down 7.1% year over year.
Hasbro’s net revenue of $829.3 million increased 8.2% year over year driven by continued growth in the Girls Category, significant growth in the Boys segment and a 17.0% increase in international sales. However, it missed the Zacks Consensus Estimate of $843.0 million by 1.6%, which we believe was due to the underperformance of the Games and Pre-school segment. Revenues also experienced an unfavorable impact from currency translation.
Behind the Headline Numbers
Hasbro’s product segments comprise Games, Girls, Preschool and Boys categories. Games category revenues declined 12.0% to $225.7 million. Decline in revenues of several brands, including Twister, Duel Masters and Magic: The Gathering was partially offset by an increase in revenues from Monopoly, The Game Of Life, and initial shipments of Simon Swipe.
The Girls category surged 10.0% year over year to $163.8 million, thanks to continued strong growth from My Little Pony, My Little Pony Equestria Girls and Nerf Rebelle.
Preschool category revenues dipped 4.0% to $103.9 million due to lower revenues from Playskool and Sesame Street products.
After declining throughout 2013, the Boys category posted growth in revenues for the second consecutive quarter. Revenues were $335.8 million, up 32.0% year over year driven by growth in Transformers and Marvel products.
Segment-wise, net revenue from the U.S. and Canada segments declined 2.0% year over year to $383.0 million owing to a decline in the Games and Preschool categories in the region. However, it was partially offset by higher revenues from the Girls and Boys category. The segment’s operating profit also declined 20.5% to 46.9 million.
International segment revenues grew 17.0% to $396.8 million. Revenues in the International segment can be attributed to double-digit growth in Europe, Latin America and Asia Pacific as well as growth in the Boys and Girls categories. The segment’s operating profit was $29.2 million, up 98.0%.
Entertainment and licensing segment revenues increased 35.0% year over year to $47.7 million, driven by growth in lifestyle licensing, digital gaming as well as the addition of Backflip Studios to the segment. The segment’s operating profit increased 295.0% on a year-over-year basis to $14.6 million.
Hasbro’s cost of sales ratio declined 60 basis points (bps). Its selling-distribution-administration expenses ratio declined 120 bps while there was a 190 bps increase in royalty expenses ratio. Adjusted operating profit was up 8.0% year over year owing to increase in revenues.
Our Take
Though the company missed the Zacks Consensus Estimate on earnings and revenue, both were up considerably year over year. The Girls segment continues to drive growth. Moreover, the Boys segment maintained the trend of year-over-year growth. The favorable numbers can be attributed to Hasbro’s consistent efforts to establish its presence worldwide through strategic partnerships and rapid growth in emerging markets. However, we believe consumer spending uncertainty still lingers amid sluggish economic growth in the U.S. with customers reducing their non-essential purchases.
Hasbro carries a Zacks Rank #2 (Buy). Investors interested in the industry can also consider Electronic Arts Inc. (EA) that sports a Zacks Rank #1 (Strong Buy). Meanwhile, another gaming company Glu Mobile, Inc. (GLUU) will report its results on Jul 30, 2014 while Activision Blizzard, Inc. (ATVI) will report its earnings on Aug 5.
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