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Hasbro Made Up for Last Quarter's Miss, But...

By Danny Vena - Oct 26, 2017 at 10:34AM

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The market reaction to Hasbro's quarter was quarter was initially positive, but then things turned ugly.

When industry-leading toymaker Hasbro, Inc. (HAS 0.35%) reported its financial results before the market opened on Monday, investors wanted to see if the company could make up for last quarter's weaker-than-expected results.

The market initially seemed pleased with the current financial picture, which produced the highest revenue and earnings quarter in the company's history.  While the results exceeded investors' expectations, things turned sour, causing the stock to fall nearly 10%.

Let's look at the raw numbers and why the market was in no mood to play games.

Monopoly game player exchanging a property card for cash.

Hasbro had its best quarter ever. Image source: Hasbro.

Playing well with others

Here's how net revenue looked:

Revenue Source

Q3 17

Q3 16

Change (YOY)

Franchise brands

$827.3

$773.4

7%

Partner brands

$485.7

$493.7

(2%)

Hasbro gaming

$280.1

$229.9

22%

Emerging brands

$198.4

$182.8

9%

Total

$1,791

$1,679

7%

DATA SOURCE: HASBRO SEC FILINGS. ALL DOLLAR FIGURES ARE IN MILLIONS. YOY = YEAR OVER YEAR.

For the just completed quarter, net revenue grew to $1.791 billion, a 7% increase over the prior-year quarter, while net earnings increased to $265.6 million, up 3% year over year, with diluted earnings per share of $2.09. Analysts surveyed by Zacks Investment Research expected revenue of $1.77 billion, and earnings per share of $1.93. 

The most impressive year-over-year gains, of 22%, came from the company's gaming segment, which was driven by a diverse portfolio of both board and digital games. Hasbro said several games saw significant growth, including Speak Out and Fantastic Gymnastics.

The small decline in partner brands was primarily due to the launch of product for the DreamWorks Trolls movie in the prior-year quarter and no corresponding release in the current period.

Emerging brands also impressed, as Baby Alive and Furreal Friends were the main growth drivers.

Sales were relatively strong across all the company's geographic markets:

Revenue Source

Q3 2017

Q3 2016

Change (YOY)

U.S. and Canada

$993.8

$932.8

7%

International

$739.2

$690.6

7%

Entertainment and licensing

$58.4

$56.1

4%

DATA SOURCE: HASBRO SEC FILINGS. ALL DOLLAR FIGURES ARE IN MILLIONS. YOY = YEAR OVER YEAR.

So why is the market in no mood to play?

With the company producing record results that beat investor's expectations, why was the stock falling? Ongoing problems at Toys R Us, which accounts for 9% of Hasbro's sales, spooked investors.

In a prepared statement, Brian Goldner, Hasbro's chairman and chief executive officer, said, "As a result of the Toys R Us bankruptcy filing in the U.S. and Canada, there was a negative impact on our quarterly revenues and operating profit." The company reported that incremental bad debt expense resulted in a 1% hit to operating profit. 

Hasbro had an estimated $59 million in unsecured credit at the time Toys R Us filed for bankruptcy protection. 

Looking forward

Hasbro also said it expects growth for the coming quarter to be in a range of 4% to 7% over the prior-year quarter, when the company produced $1.63 billion in revenue. That's significantly below the consensus estimate of 11% growth, which probably contributed to the stock price decline.

In light of the uncertainty resulting from the Toys R Us bankruptcy, the company is probably providing conservative guidance, which is prudent considering the circumstances.

All the major players in the toy industry have been affected by the situation, and we won't know the final tally until after the all-important holiday season.

Danny Vena owns shares of Hasbro. The Motley Fool owns shares of and recommends Hasbro. The Motley Fool has a disclosure policy.

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