Toy maker Hasbro (HAS -0.22%) reported second-quarter 2018 results before market open on Monday. Revenue and earnings per share declined 7% and 9.4% year over year, respectively. Loss drivers remained the same as last quarter: the bankruptcy and subsequent liquidation of Toys R Us in the U.S. and other geographic markets, and the company entering the quarter with excess retail inventory in Europe.
Shares of Hasbro closed up 12.9% on Monday, which we can attribute to both revenue and earnings coming in higher than most investors were expecting. Shares have pulled back about 5% on Tuesday as of midafternoon trading.
Image source: Hasbro.
Hasbro's key quarterly numbers
|
Metric |
Q2 2018 Result |
Q2 2017 Result |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$904.5 million |
$972.5 million |
(7%) |
|
Net income |
$60.3 million |
$67.7 million |
(10.9%) |
|
Earnings per share (EPS) |
$0.48 |
$0.53 |
(9.4%) |
Data source: Hasbro.
Putting the revenue decline in context, sales to Toys R Us accounted for about 9% of Hasbro's revenue in 2017, according to fellow Fool Tim Green.
Earnings got a boost from a lower tax rate due to U.S. tax reform. The quarter's underlying tax rate was 17.4%, versus 24.7% in the second quarter of 2017.
For context -- though long-term investors shouldn't place too much weight on Wall Street's near-term estimates -- analysts were expecting adjusted EPS of $0.30 on revenue of $838.1 million. So Hasbro crushed both expectations.
What happened with Hasbro in the quarter?
- Revenue from franchise brands declined 8% from the year-ago quarter to $506.5 million. Growth in Magic: The Gathering, Monopoly, and Baby Alive wasn't enough to overcome declines in other brands.
- Revenue from partner brands declined 10% to $208 million. Declines in most brands were greater than the gains made by Beyblade and Disney's Marvel.
- Hasbro gaming revenue was approximately flat at $134.3 million.
- Emerging brands revenue slipped 1% to $55.6 million.
- U.S. and Canada segment revenue declined 7% to $459.3 million, international segment revenue dropped 11% to $380.4 million, and entertainment and licensing revenue increased 26% to $64.7 million.
- The company acquired the Power Rangers brand.
What management had to say
Here's what Hasbro CEO Brian Goldner had to say in the press release:
2018 is unfolding as expected as our teams manage the liquidation of Toys"R"Us in many markets and address the rapidly evolving European retail landscape. We are investing in our business -- in innovation, entertainment and a modern global commercial organization, to drive profitable growth in 2019 and beyond. Consumer takeaway is up for our brands, and we further strengthened our brand portfolio through the acquisition of POWER RANGERS. We are focused on moving beyond the near-term disruption of losing a major customer, with a clear path forward including new retailer activations to meet the consumer demand made available by the Toys"R"Us departure.
Looking ahead
Hasbro did a commendable job in the quarter managing the impact to its business from the Toys R Us bankruptcy, an event that has disrupted the entire toy industry.
The light at the end of the tunnel isn't far away, according to management. They expect the effect to Hasbro's business from the Toys R Us liquidation to lighten in the second half of the year -- the more important half due to the holiday season. Moreover, Goldner reiterated on the earnings call that while the company doesn't expect "to capture all the lost revenues in 2018," it does anticipate that "by 2019 we should have moved beyond Toys R Us."
