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Mattel 1, Hasbro 0

Rick Aristotle Munarriz
July 18, 2011

"More than meets the eye," is the old tag line from Hasbro's (NYSE: HAS  ) Transformers toy. It also applies to this morning's quarterly report out of the country's second-largest toymaker.

Hasbro's report is spectacular at first glance.

Revenue climbed 23% to $908.5 million, with earnings -- on a per-share basis -- soaring nearly 45% to $0.42 a share. Analysts were only expecting a profit of $0.39 a share on $854.8 million.

It looks like a healthy beat on both fronts, so why did Hasbro's stock open 3% lower this morning? Well, let's break down how a great quarter is actually a very disappointing showing.

Most of the revenue beat came from a positive $35.8 million foreign exchange impact. The bottom line is far more deceptive. For starters, Hasbro's been buying back gobs of stock lately. This is an applause-worthy tactic for most companies, but it does inflate profitability on a per-share basis. Net income itself only climbed by 33%, and not the 45% suggested once earnings get divided by the fewer shares outstanding.

Unfortunately, even that 33% boost is a facade. Back out a meaty favorable tax adjustment and add back smaller one-time expense items, and earnings clocked in at $0.33 a share. After meeting and la