Toy maker Hasbro (HAS 4.01%) reported its fourth-quarter and full-year 2019 results before the market opened on Tuesday, Feb 11.
Shares opened up 6.9% and soon rose 8.5% before giving back their entire gain -- and then some -- and closing down 0.8% on Tuesday.
We can attribute the market's initial reaction to the fact that the giant toy maker's earnings easily beat Wall Street's consensus estimate, driven by robust holiday sales of toys based on Disney's (DIS 1.54%) Star Wars franchise and Frozen 2 movie. The initial euphoria soon faded, though, probably replaced by investors' concerns about the coronavirus. This rapidly spreading virus has shuttered many Chinese factories and is poised to interrupt the supply chains of many companies around the world. Ongoing trade uncertainties also probably weighed on investors' sentiment.
Here's how the quarter worked out for Hasbro and its investors.
Image source: Getty Images.
Hasbro's key quarterly numbers
|
Metric |
Q4 2019 Result |
Q4 2018 Result |
Change |
|---|---|---|---|
|
Revenue |
$1.43 billion |
$1.39 billion |
3% |
|
GAAP operating income |
$190.4 million | $10.5 million | 1,713% |
|
Adjusted operating income |
$208.1 million | $190.0 million | 9.5% |
|
GAAP net income |
$267.3 million |
$8.8 million | 2,938% |
|
Adjusted net income |
$164.8 million |
$169.6 million |
(3%) |
|
GAAP EPS |
$2.01 |
$0.07 | 2,771% |
|
Adjusted EPS |
$1.24 |
$1.33 |
(7%) |
Data source: Hasbro. GAAP = generally accepted accounting principles. EPS = earnings per share.
The consumer discretionary company's revenue growth continues to be hurt by the strong U.S. dollar. Excluding the $13 million negative impact of foreign exchange, Q4 revenue grew 5%.
Wall Street was looking for adjusted EPS of $0.91 on revenue of $1.44 billion. So Hasbro crushed the bottom-line expectation and came in essentially in line on the top line.
For the full year 2019, Hasbro's revenue edged up 3% year over year -- or 5% in constant currency -- to $4.72 billion. Adjusted for one-time items, net income was $524.7 million, or $4.08 per share, compared with $488.8 million, or $3.85 per share, in 2018.
What happened with Hasbro in the quarter?
- Revenue from franchise brands dropped 9% year over year to $661.9 million, revenue from partner brands soared 50% to $408.5 million, Hasbro gaming revenue fell 8% to $246.5 million, and emerging-brands revenue declined 7% to $111.1 million.
- The powerful partner brand growth was driven by strong holiday sales of the company's toys and other products based on Disney's Frozen and Star Wars franchises, as the movies Frozen 2 and Star Wars: The Rise of Skywalker were released in November and December, respectively. Sales of Star Wars toys also got a boost from The Mandalorian airing on Disney's new streaming service, Disney+.
- U.S. and Canada segment revenue grew 3% year over year to $682.4 million, international segment revenue slipped 1% to $615.1 million, and entertainment and licensing revenue jumped 19% to $130.2 million.
- Within international, revenue in Europe rose 3% to $369.5 million, revenue in Latin America fell 11% to $130.6 million, and revenue in Asia increased 3% to $115.0 million.
- Just after the quarter ended, the company completed its all-cash $3.8 billion acquisition of Entertainment One, or eOne, the Canadian entertainment company that owns various popular global preschool brands, most notably Peppa Pig.
What management had to say about 2019's performance and the coronavirus
Here's what CEO Brian Goldner had to say in the press release about 2019:
The global Hasbro team delivered a good year and achieved key objectives we set for 2019. We profitably grew revenues across regions absent foreign exchange supported by the successful execution of our channel strategy; we delivered growth in MAGIC: THE GATHERING driven by the successful launch of Arena and we executed at a high level during the holiday season. Our acquisition of Entertainment One accelerates our Brand Blueprint strategy and significantly expands our expertise and capabilities as a global play and entertainment company.
On the earnings call, CFO Deb Thomas commented on the coronavirus:
There is disruption to our supply chain and commercial operations in China as travel is limited and employees and factory workers have been delayed in returning to work. The impact to our business to date is small, but it is challenging to quantify the potential magnitude at this time, as it will depend on how long it takes to contain the outbreak. If it takes a significant period of time to control, there could be a larger impact on our business.
Looking ahead
Hasbro had a solid quarter and year in light of the issues beyond its control. The company did a commendable job in 2019 recovering from the Toys R Us bankruptcy, which disrupted the global toy industry. Unfortunately for Hasbro and its investors, however, just as it was putting the giant retailer's bankruptcy behind it, it was hit with the United States' escalating trade war with China.
Now, in 2020, the trade issues seem to be improving, but Hasbro was thrown another curve ball compliments of our global economy: the coronavirus.
Long-term investors should focus on how well Hasbro is performing given factors that are within its control, as the issues beyond its control will eventually subside.
The company doesn't provide guidance.
