After an absolute pounding in 2018, toy-making giant Hasbro (NASDAQ:HAS) is on a tear. The stock is up 45% year-to-date on the back of improving sales and profits as the company adapts to a post-Toys R Us world.

The second quarter showed off continued improvement, even though not all was perfect. Nevertheless, earnings reported this week show Hasbro is executing a solid growth plan and keeping expenses in check. There is a lot to like about this stock -- for its prospects during the back half of 2019 and beyond.

Strong dollar and pension plans take their cut

Hasbro was able to overcome several headwinds during the second quarter to deliver big top- and bottom-line gains. Overall second-quarter revenue was up 9%, even though international business fell 1% due to negative currency exchange rates (sales would have been up 11% otherwise). Hasbro also continued some promotional activity to work through older inventory, but margins on toys and other product went up anyway. Excluding effects from Toys R Us last year, an $111 million pension charge this quarter, and other one-time nonrecurring items, adjusted earnings rebounded in a big way the first half of 2019.

Metric

Six Months Ended June 30, 2019

Six Months Ended July 1, 2018

Increase (Decrease)

Revenue

$1.72 billion

$1.62 billion

6%

Gross profit margin

64.8%

63.4%

1.4 pp

Operating profit

$164 million

$7 million

N/A

Earnings per share

$0.32

($0.42)

N/A

Adjusted earnings per share

$0.99

$0.58

71%

Pp = percentage point. Data source: Hasbro. 

Digital gaming, specifically the company's Magic: The Gathering and Dungeons & Dragons series, were big hits. But Hasbro's investment in the digital sale of toys is starting to pay off as well after the fallout last year from the Toys R Us chain closing up shop. Direct-to-consumer selling has been working, with management citing a successful presence at San Diego ComicCon where fans could make limited edition collectible purchases online; and e-commerce sales on Amazon have also been picking up, with Play-Doh and Nerf mentioned as doing particularly well during the recently wrapped up PrimeDay sales event.  

In other news in the second quarter, Hasbro has continued to double down on its entertainment strategy, using its loved portfolio of toys to tell stories. Notably, it will be making games based on Netflix's Stranger Things series, and Netflix will be working up a Magic: The Gathering animated series as well. The strategy has worked for Transformers, and the hope is it will work elsewhere, too.  

A toy robot standing triumphantly atop a pile of other toys.

Image source: Getty Images.

A modern toy strategy yielding results

Besides finding replacement points-of-sale for traditional brick-and-mortar stores, Hasbro is embarking on a multipronged approach to toy growth. The company has a well-established portfolio of popular toys (the "franchise brands" segment, which was up 14% in the second quarter) that it's leveraging into gaming and other digital content. Hasbro's emerging brands -- which include the relaunch of Power Rangers -- was up 28% year over year.

And then there's the "partner brands" segment, with Disney (NYSE:DIS) and its subsidiaries being the biggest contributor there. Partner brands were up only 3% during the second quarter, but it could be a boon later in the year. Disney's Frozen 2 and Star Wars: The Rise of Skywalker are both hitting theaters in the fourth quarter, and there's the ongoing steady release of Marvel movies that are equating to strong toy sales.

Hasbro doesn't provide any specific guidance but headed into the second half of 2019 -- the more important half, as it contains the holiday shopping season -- the company is optimistic. After a great start to the year, the stock is valued at 23.7 times one-year forward price to earnings based on analysts' bottom-line expectations. Not cheap, but reasonable given Hasbro's solid pipeline and fast-improving profits after a dismal 2018 for the toymaker.