Hasbro Inc. (HAS) posted fourth-quarter 2014 results wherein earnings were in line with the Zacks Consensus Estimate but revenues missed.
Adjusted earnings per share of $1.22 matched the Zacks Consensus Estimate. However, earnings per share were up 8.9% from $1.12 reported in the year-ago quarter driven by higher year-over-year revenues and lower share count.
Adjusted earnings excluded a pre-tax charge related to the restructuring of the company’s investment in the Hub Network joint venture, along with a pre-tax benefit from the sale of licensed rights for intellectual property and favorable tax adjustments related to tax exam settlements.
Hasbro’s net revenue of $1.30 billion increased 1% year over year driven by continued growth in the Boys segment and rise in Entertainment and licensing revenues. However, the company missed the Zacks Consensus Estimate of $1.35 million by 3.7%, which, we believe, was due to the underperformance of the Girls and Games segments.
Behind the Headline Numbers
Hasbro’s product segments comprise Games, Girls, Preschool and Boys categories. Games category revenues decreased 4% to $418.3 million mainly due to growth in revenues in the Magic: The Gathering, Monopoly, Simon and The Game of Life. These were partly offset by declines in several brands, including the Angry Birds, Twisters and Duel Masters.
The Girls category revenues declined 10% year over year to $312.4 million.
Preschool category revenues dipped 0.3% to $146 million due to lower revenues from Playskool and Sesame Street products. These declines were offset by higher revenues in Play-Doh and Transformers Rescue Bots.
The Boys category turned around after declining throughout 2013 and posted revenue growth for the fourth consecutive quarter. Revenues were $421.9 million, up 21% year over year, driven by growth in Transformers, Nerf and Marvel products, partly offset by a decline in Beyblade.
Segment-wise, net revenue from the U.S. and Canada segments declined 0.3% year over year to $537.5 million. The segment’s operating profit increased 17% to $82.2 million.
International segment revenues grew 2% to $671.4 million. The segment’s operating profit was $122.4 million, up 2%.
Entertainment and licensing segment revenues increased 10% year over year to $83.5 million. The segment’s operating profit climbed 37% on a year-over-year basis to $39.4 million.
Hasbro’s cost of sales ratio declined 200 basis points (bps) to 39.8%. Its selling, distribution and administration expenses ratio increased 80 bps, while royalty expenses ratio decreased 40 bps. Adjusted operating profit was up 4% year over year backed by revenue growth.
Full-Year 2014 Results
Hasbro’s adjusted earnings for 2014 were $3.15, up 11.3% year over year.
Revenues increased 5% year over year to $4.28 billion.
Hub Network Joint Venture
On Sep 25, Hasbro and Discovery Communications, Inc. (DISCA) had declared that the Hub Network would become Discovery Family Channel, effective Oct 13, 2014. The network broadened its programming focus to serve families during primetime and continues to showcase Hasbro Studios award-winning children’s content during daytime.
Our Take
Though the company missed the Zacks Consensus Estimate for revenues, both sales and earnings were up on a year-over-year basis. Moreover, the Boys segment maintained the trend of improving year over year.
The favorable numbers can be attributed to the company’s consistent efforts to establish its presence worldwide through strategic partnerships and rapid growth in the emerging markets. However, we believe that consumer spending uncertainty lingers in the U.S. with customers reducing their non-essential purchases.
Hasbro carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Take-Two Interactive Software Inc. (TTWO) and Electronic Arts Inc. (EA). Both the companies sport a Zack Rank #1 (Strong Buy).
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