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Trump Plays Games With China, and Hasbro Loses

By Chris Hill – Updated Nov 6, 2019 at 5:01PM

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The toy company would be doing a lot better if it weren't for the trade war and tariff threats.

The executives at toy maker Hasbro (HAS -2.40%) have been strong on strategy when it comes to the things they can control. But even the company that makes Monopoly can't do much when world leaders flip the macroeconomic board over. Hasbro missed on profits and revenue for its latest quarter, and as you'll hear in this segment of the Oct. 25 Motley Fool Money podcast, the reason is the trade war. Host Chris Hill and analysts Jason Moser and Ron Gross discuss why tariffs that haven't even gone into effect yet are wreaking havoc and causing ripples from suppliers like Hasbro to retailers and back again. They also review Hasbro's fundamentals, and applaud one strategy in particular that has been paying big dividends for the company. 

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on Oct. 25, 2019.

Chris Hill: Rough week for Hasbro. The toy maker's third quarter profits and revenue both came in lower than expected. Shares falling close to 25% this week. Ron, was it that bad? 

Ron Gross: Not that bad, but the stock is still up 16% this year, so that tells you how Hasbro had been doing prior to this. Weaker than expected third quarter profit, largely blamed on tariffs that haven't even happened yet, which is interesting. Uncertainty over the tariffs forced retailers to cancel or delay orders. Shipping and warehouse costs jumped as a result. Revenue was down as well. The company sources more than two-thirds of its products from China. They tried to calm folks down by saying they have a plan in place to reduce that to 50% by 2020. But still, it was a quarter that was interrupted by the unknown. Right now, 10% tariff on toys set to take place on December 1st. If that does occur, the company has warned that price hikes will ensue. It's an interruption in Hasbro's strategy. They've been making some nice acquisitions, and their partnership with movies like Star Wars, Avengers, all those folks, had been going quite well. So, once again, we see macro-economic factors here.

Hill: I was going to say, normally when we look at the toy makers, we look at their individual divisions. How are the board games doing, how are the toys? As you said, their partner sales division, when you look at the partnerships with Marvel, the partnership they established a few years ago with Disney, taking that from Mattel, continues to pay dividends for them.

Gross: Real strong. Partner brands up 40%. That's really strong. The bread and butter, the Monopoly, the Nerf, the Play-Doh, not so strong, down 8%. Their gaming revenue, Dungeons & Dragons was strong, but the rest were weak, down 17%. So, it's really the partner brands and their licensing division that are the stronger pieces of the business. 

Jason Moser: And don't forget, this Disney+ product I think is going to give them the opportunity to really capitalize on a lot of that new content that's coming out there. It's a bit further down the road perhaps. But no question there's an opportunity there.

Chris Hill owns shares of Walt Disney. Jason Moser owns shares of Hasbro and Walt Disney. Ron Gross owns shares of Walt Disney. The Motley Fool owns shares of and recommends Hasbro and Walt Disney. The Motley Fool is short shares of Hasbro and recommends the following options: long January 2021 $60 calls on Walt Disney and short January 2020 $130 calls on Walt Disney. The Motley Fool has a disclosure policy.

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