What happened

Shares of Hasbro (NASDAQ:HAS) lost 18% in value last month, according to data from S&P Global Market Intelligence.

The toy maker reported disappointing revenue and earnings results for the third quarter, as the threat of tariffs on imports from China raised shipping and warehousing costs and delayed orders. 

A boy using a tablet computer with toy cars laying around him on the floor.

Image source: Getty Images.

So what

Here are the key numbers from the quarter: 

  • Revenue was $1.575 billion, compared with $1.569 in the year-ago quarter.
  • Net income fell 19% year over year to $212.9 million.
  • Adjusted earnings per share came in at $1.84, below analysts' estimates of $2.21. 

While the company remains on track to deliver profitable growth for the full year, retail order patterns have changed in response to tariffs. This is putting a lot of stress on Hasbro's supply chain, as the company works to meet high demand in a short period.

On the bright side, CEO Brian Goldner mentioned that the company is prioritizing order fulfillment of "important launches," including Star Wars Triple Force Friday, Frozen 2, and Nerf Ultra, which are off to a good start. 

Hasbro saw a 20% revenue increase in the entertainment, licensing, and digital segment. This performance was driven by Magic: The Gathering Arena and Transformers: Bumblefee film revenue, partially offset by lower digital streaming revenue. 

However, the growth in Magic: The Gathering was more than offset by a decline in other Franchise Brands, including Nerf, My Little Pony, Baby Alive, and Play-Doh. Management blamed the lower Nerf revenue on innovation initiatives to position the brand for growth in North America. 

Now what

Looking beyond the next quarter, Hasbro is already working to lessen its dependence on China imports. The company is on track to shift as much as 50% of U.S. sourcing outside China by the end of 2020. 

The near term will be difficult for Hasbro, but management continues to invest in the future, as Goldner discussed on the conference call: 

We are actively developing our brands for success in analog and digital play and entertainment while investing for long-term profitable growth, including the Sept. 26 launch of Magic: The Gathering arena, our investments in Wizards gaming beyond arena, and our announced plans to acquire Entertainment One.

The deal to acquire Entertainment One for $4 billion was recently approved by shareholders and is currently waiting for regulatory approval. The acquisition expands Hasbro's brand portfolio to popular preschool brands such as Peppa Pig and PJ Masks, which should enhance the company's growth opportunities across TV, film, and other media. 

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