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Why Hasbro Stock Plunged 24% in February

By John Ballard - Mar 5, 2020 at 5:04PM

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Most of the company's products are made in China, where the COVID-19 situation remains in flux.

What happened

Hasbro's (HAS 0.05%) stock price fell by 24.2% last month, according to data provided by S&P Global Market Intelligence.

On Feb. 11, Hasbro delivered mixed results for its holiday quarter, which ended Dec. 29. While the toy company handily beat earnings expectations, its sales of $1.43 billion were slightly below Wall Street analysts' consensus estimate of $1.44 billion. 

The combination of lower-than-expected revenue and rising fears about the impact that the COVID-19 epidemic might have on the company's supply chain sent its shares tumbling. Hasbro is particularly sensitive to this outbreak, since two-thirds of its products are sourced from China. 

Toys in a wooden crate.

Image source: Getty Images.

So what

Investors seemed content with Hasbro's quarterly report, as the stock didn't budge much in the week following earnings. But as the coronavirus spread, investors hit the sell button, fearing that Hasbro may not be able to get its toys and games to customers if factories are shut down in China.

Toy makers' stocks are particularly sensitive to negative news, since the industry has been struggling to find growth in recent years as children spend more time with digital entertainment. 

Now what

Hasbro Vice President of Investor Relations Deb Hancock recently told CNBC that the COVID-19 outbreak in China has so far had only a "small" impact on the company's inventory sourcing, but noted that a wider epidemic could have a larger impact. 

The first quarter is typically a slow period for Hasbro, but if people can't get back to work at its production sites in China, the company's first-quarter performance could suffer. However, during the recent earnings conference call, Hancock said management is "optimistic" that the company will be able to catch up over the full year. 

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Hasbro. The Motley Fool has a disclosure policy.

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