It's Time to Play Again

The toymakers are back. Shares of Hasbro (NYSE: HAS  ) soared 13% yesterday, after the country's second-largest maker of playthings delivered better-than-expected fourth-quarter results.

Revenue climbed 12%, to $1.38 billion. Favorable foreign exchange trends propped up results, but Hasbro's top line still would have inched 7% higher on a constant dollar basis. The real story here, however, is the toymaker's widening margins. Earnings soared 77%, to $1.09 a share, completely obliterating analyst estimates of $0.81 a share.

Even for a company that has consistently topped Wall Street's profit targets, this is ridiculous.

The company's success during the telltale holiday quarter came primarily from its action toys. Having its G.I. Joe and Transformers toy lines splashed across the silver screen this past summer obviously helped Hasbro.

However, the toymaker isn't alone in the winner's circle. Rival Mattel (NYSE: MAT  ) also posted a huge upside earnings surprise with its holiday-quarter results two weeks ago.

Why end the party now? LeapFrog Enterprises (NYSE: LF  ) is expected to post its first fourth-quarter profit since 2005 on Thursday. Analysts see smaller toymakers JAKKS Pacific (Nasdaq: JAKK  ) and RC2 (Nasdaq: RCRC  ) posting year-over-year dips in quarterly profitability later this month, but every silk rose has its plastic thorns. When market leaders Mattel and Hasbro come through with bottom-line spurts of 86% and 77%, respectively, the industry deserves to be welcomed back into Mr. Market's good graces.

The future is undeniably bright for Hasbro. There will be more Hollywood adaptations in the coming years. Its joint venture with Discovery Communications (Nasdaq: DISCA  ) (Nasdaq: DISCK  ) to launch a kid-centric television channel will become a reality later this year, when Discovery Kids is rechristened as The Hub in the fall.

Hasbro bulls will argue that the company isn't technically back, because it never really went away. Revenue has climbed in each of the past five years, with buyback-padded earnings per share inching higher for nine consecutive years. However, seeing Hasbro soar in tandem with the previously moribund Mattel is a screaming indicator that the toymaker industry itself is once again on the rise.

Hasbro is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Hasbro and RC2. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz is a kid at heart, with the closet full of games to prove it. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy is harmful only if it's not swallowed.


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