Blockbuster Connections Give Hasbro the Advantage Over Mattel

A strong portfolio of character-centered brands such as its enduring Transformers line, Magic: The Gathering, and My Little Pony gives toy/media company  Hasbro (NASDAQ: HAS  ) a leg up over rival Mattel (NASDAQ: MAT  ) which lacks a product portfolio with that type of focus. Sure, Mattel has Monster High, American Girl, Barbie, and Hot Wheels; however, Mattel lacks the blockbuster exposure brought to Hasbro through live-action movie line-ups like Transformers  and G.I. Joe: The Rise of Cobra. This is one big reason that Hasbro looks like a better investment right nowthan Mattel.

Consumer engagement
In Hasbro's most recent earnings call, CEO Brian Goldner summed up the company's strategy in one sentence: "In 2014, we have strong retailer support both in-store and online for Hasbro product and licensing initiatives as we drive the revolution in consumer engagement with content, licensing and in partnership with our global retailers."  The operative words here are "consumer engagement with content." Hasbro wants its customers to experience its products on multiple levels such as movies, animated series, and variations on its toys.

For example, the previous three live-action Transformers movies gave a serious boost to Hasbro's top line in the years surrounding their release as excited consumers purchased toys based on the movies .   Hasbro, via its partially owned  Hub TV network, has also aired animated Transformers series to keep the interest alive between movies. Transformers' related revenue declined slightly in the most recent quarter; however, this stems from clearing inventory and gearing up for the new movie event Transformers: Age of Extinction, slated for release on June 27.  

Another example is Magic: The Gathering, an immersive card game in which people play matches with one another either face to face or in online forums, creating customer interaction with the content and one another. Hasbro renews consumer interest by providing fresh, new card sets and updates to story lines on a periodic basis. Another plus: Magic: The Gathering provides the company growth in revenue that doesn't depend on the holiday season. Magic: The Gathering increased revenues in the most recent quarter, serving as a buffer against further revenue declines in Hasbro's games segment. 

My Little Pony characters also helped drive revenue gains of 21% in Hasbro's girls segment.  Like Transformers, this brand comes with an animated series and movies to help keep consumer interest in the product line alive. Hasbro's new variation, My Little Pony Equestria Girls, has helped refresh the line for its consumers.

Hasbro also engages customers in board game marketing. For example, Hasbro allowed customers to vote on new terms such as "Geocache" for playability in its board game Scrabble. Moreover, Hasbro hosted a debate online where customers weighed the pros and cons of "House Rules" and will make changes in future Monopoly games accordingly. 

The Competition
Mattel's product portfolio lacks two elements that Hasbro possesses in abundance: more character-centered brands and blockbuster movies based on them. In Mattel's most recent quarter Barbie experienced a sharp decline in sales of 14% globally. Barbie largely represents a general character with diverse accessories to suit the customer's interests, but without a singular personality. Another longtime product line that usually struggles, Hot Wheels, perhaps due to its inanimate nature in contrast to Transformers that change shape and represent dynamic characters, increased 2% in the most recent quarter. New products, animated content, and a revised website helped serve as a shot in the arm. However, it's Mattel's Monster High product line, which centers on a set characters that are promoted through video games and television, that has grown into a $1.5 billion product line.  

Positive results
Hasbro's focus and brand strength translated into superior fundamentals for the company in the most recent quarter. Hasbro grew its overall revenue 2% versus a 5% decline for Mattel. Hasbro showed a net income of $32 million during that time frame while Mattel showed a net loss of $11 million. Hasbro also sports a better balance sheet, with cash clocking in at 50% of stockholder's equity versus 29% for Mattel. Hasbro saw a 32% year-over-year reduction in its long-term debt during the most recent quarter, bringing its long-term debt-to-equity ratio from 95% to 60%.Hasbro also wants to refinance $425 million of that to bring in a lower interest rate this year.

What now?
Hasbro should experience a good year assuming that Transformers: Age of Extinction lives up to its predecessors. Mattel wants to jump on the bandwagon with its recently announced Barbie movie. Hopefully this will add a character element to this ailing Mattel product line. Otherwise, Hasbro remains the better bet for investors now. 

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2932761, ~/Articles/ArticleHandler.aspx, 8/29/2015 11:34:29 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

William Bias

William has been a stock market enthusiast since 1992.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
HAS $75.51 Up +0.37 +0.49%
Hasbro CAPS Rating: ****
MAT $23.20 Up +0.37 +1.62%
Mattel CAPS Rating: ****