Source: Hasbro.
Hasbro (HAS 4.01%)is slated to report its second-quarter earnings before the market opens on Monday, July 20th. Despite continuing tough times in the global toy market, the company is going into earnings with positive momentum. It started 2015 off strong by posting better-than-expected first quarter results, and its stock price just notched another 52-week high on Thursday.
We are going to look at what analysts expect, some key points to focus on in the report, and how Hasbro is positioning itself for long-term success. Investors who know what to expect before earnings are announced will be better prepared to make good decisions, especially if thrown a curve (Nerf) ball.
| Metric | |
|---|---|
|
Analyst Q2 EPS Estimate |
$0.29 |
|
Change From Year-Ago EPS |
(19.4%) |
|
Q2 Revenue Estimate |
$773.1 million |
|
Change From Year-Ago Revenue |
(6.8%) |
| Earnings Beats in Last 4 quarters | 3* |
|
Analyst 2015 EPS Estimate |
$4.33 (representing 1.2% growth) |
|
Analyst 2015 Revenue Estimate |
$331 million (representing 5.1% growth) |
Source: Yahoo! Finance. *Two of the three beats were just by $0.01.
Will Hasbro surprise the market again?
While we won't know the answer to this question until Monday, it bodes well for 2015 that Hasbro is going into earnings with a significant first quarter beat under its belt.
The market has driven Hasbro's one-year total return up 51% through Thursday. More importantly for long-term investors, the 10-year total return of 381% has trounced broad market returns of just 114%. This is despite the many challenging years the global toy industry has weathered, thanks largely to the growing popularity of various electronic gadgets.
Meanwhile, the market continues to punish rival Mattel, as the industry's other powerhouse continues to battle weakness in a couple key brands, most notably its iconic Barbie brand. Mattel did, however, manage to surprise on the upside on Thursday, when it reported better-than-expected earnings, though it missed on revenue.
Expect continued foreign exchange rate headwinds
Investors should keep in mind the negative effects the strong U.S. dollar is having on the revenue of companies, such as Hasbro, that do a significant amount of international business.
It is best to consider revenue growth on a constant-currency basis -- which we will be providing in our earnings take -- when gauging how well a company's underlying business is performing, rather than just looking at the headline year-over-year revenue comparison.
Last quarter, Hasbro posted year-over-year revenue growth of 5%, which significantly understates how well the company is performing, given its revenue grew 14% on a constant-currency basis.
Look for continued strength in franchise brands and the entertainment and licensing segment
Revenue growth last quarter was powered by 20% growth in franchise brands. These seven brands are: Littlest Pet Shop, Magic: The Gathering, Monopoly, My Little Pony, Nerf, Play-Doh, and Transformers.
Hasbro wisely continues to leverage the popularity of these brands. Earlier this month, for instance, the company announced it was teaming with Lions Gate Entertainment to bring a story based on the Monopoly board game to the silver screen. Hasbro has successfully turned its Transformers toy, among others, into major movie franchises.
The entertainment and licensing segment is tiny compared to the other two segments, U.S./Canada and international. It accounted for just 8.5% of revenue in the first quarter and 5% in 2014. However, given its rapid rate of growth -- up 74% last quarter -- it could account for a significantly larger portion of total revenue in a short time. That is great news for investors, as it is a key profit driver for the company, boasting the highest operating profit margin, by far, among the segments. In the first quarter, its operating profit margin was 27.1% vs.12% and 0.6%, respectively, for the U.S./Canada and international segments.
More Star Wars and Disney on the radar!
Source: Hasbro.
Disney will begin rolling out the third Star Wars trilogy starting this December with Star Wars Episode VII: The Force Awakens. Off-screen, the film will power Hasbro profits, as the toy maker holds the license to produce Star Wars-branded action figures and other toys.
Starting in 2016, the global rights to develop dolls based on Disney Princess characters and the immensely popular Frozen will transition from Mattel to Hasbro as well.
In short, as long as Hasbro continues to execute well, investors should be able to count on continued success, as there are solid catalysts for long-term growth currently in its playbook and on the immediate horizon.
