Hasbro Inc. Earnings Show the Power of Brands

Hasbro's (HAS -0.38%) stock bounced higher in early trading Monday after the company posted first-quarter earnings results. This is the slowest sales quarter of the year for the toys and games maker, but Hasbro still managed to trounce Wall Street expectations on both the top and bottom lines.

Source: Company financial filings and Yahoo! Finance.

Strong sales growth
Revenue jumped higher by 5%, compared to the 3% drop that analysts were targeting. And that sales gain looks even better when you strip out the effect of currency movements. Excluding foreign exchange swings, Hasbro's sales grew by a stellar 14% in the quarter.

The company managed that improvement through big gains in three of its four major product categories. The boys segment jumped 10% higher thanks to growth in the Transformers and Nerf brands, along with the first wave of sales to retailers in advance of the Jurassic World movie launch in June. 

Hasbro sold more games as well, particularly within the profitable Monopoly and Magic: The Gathering franchises. And preschool sales, led by Play-Doh and PlaySkool Heroes brands, bounced higher. Only Hasbro's girls category lost ground in the quarter. The company attributed the drop in sales in the girls unit primarily to declines in Furby, Furreal Friends, and Easy Bake products, partly offset by growth in Littlest Pet Shop and Play-Doh DohVinci products.

Hasbro's core brands. Source: Investor presentation

"The global Hasbro team delivered a strong start to the year," CEO Brian Goldner said in a press release. The company is seeing "continued momentum in our business, led by growth in all of our Franchise Brands," he said.

Profits and capital returns
First-quarter earnings growth also came in surprisingly strong and demonstrated the power of Hasbro's portfolio of franchise brands. Operating margin expanded from 6.4% of sales a year ago to 7.6% in the quarter that just closed.

That spike was driven by profit gains in the U.S. business along with higher earnings coming from the entertainment and licensing category. Improvements in those two areas more than offset flat profit growth in Hasbro's international segment.

Meanwhile, management kept up their commitment to send mounds of excess cash back to shareholders. Hasbro spent $25 million repurchasing stock in the quarter while delivering $53 million in dividend payments. The company has about $500 million remaining in its stock buyback plan. 

Hasbro is generating plenty of cash that should keep those purchases, and the company's dividend, marching higher. Operating cash flow rose 30% to $315 million, which puts Hasbro solidly on track to hit management's $500 million annual cash flow target.