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Hasbro Getting Ready to Transform

By Steven Mallas – Updated Nov 15, 2016 at 1:12AM

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Hasbro had a good year, and it didn't even have to use the Force.

Motley Fool Stock Advisor pick Hasbro (NYSE:HAS), one of the toy industry's biggest names, reported earnings for its fourth quarter and fiscal year this morning. Will its numbers put shareholders in a playful mood?

For the fourth quarter, revenues increased 4% to $1.1 billion. Operating income increased more than 25% to $192.7 million. Net profit earned was $108.3 million, or $0.62 per diluted share, which translated to a nice 29% gain in the per-share bottom line. On an adjusted basis -- including the effects of warrants related to a deal with Lucas Licensing and the Star Wars property, as well as repatriation of earnings in the previous quarter -- growth in earnings per share was 25%.

Hasbro had a great holiday quarter. What's really impressive about these results is that Hasbro didn't have the Force with it this year. Merchandise based on the Star Wars universe had a stronger presence in 2005 because the last episode of George Lucas' new trilogy was released in May of that year (Rick Munarriz pointed this out in a previous article). North American revenues were helped along by classics like Play-Doh and Monopoly; the Transformers line was also a performer. International revenues dipped on pullbacks in Furby products and, again, the weakness of Star Wars toys.

Yesterday, the company announced a 33% increase in its quarterly dividend, going from $0.12 per share to $0.16. Income investors are sure to love that news. This is a vote of confidence, since the toy industry is facing increasing pressure from "age compression," the phenomenon by which children turn away from traditional toys at younger and younger ages; electronic items such as video games and iPods are partly responsible for this situation. Competitors like Mattel (NYSE:MAT), LeapFrog (NYSE:LF), and JAKKS Pacific (NASDAQ:JAKK) also face this challenge.

Hasbro paid out $0.48 in total dividends last year -- that comes out to a payout ratio of only 37% in relation to GAAP income, which means that the company is striking a healthy balance between sharing wealth with shareholders and using income to invest in other things (like repurchases and growth). In addition, a check of last year's 10-K shows that Hasbro has generated more than enough operational cash flow over the years to fund dividend obligations.

The toy maker may not be able to rely on Star Wars as much right now, but don't worry, shareholders -- you've got a couple of neat things to look forward to. Spider-Man 3 will be in theaters later this year, and I have to believe that it's going to benefit Hasbro greatly due to the recent hookup with Marvel Entertainment (NYSE:MVL). Oh, and have you by any chance seen the trailer for the upcoming Transformers flick? I recently caught it, and let me tell you, it looks darn impressive; it made me excited to see it, and it really wasn't on my radar, to be honest. Heck, with Steven Spielberg as its executive producer, it's got be cool.

All in all, Hasbro had a great year. Earnings are up, quarterly dividends have been increased, and some potential blockbuster movies are waiting in the wings. I feel it is important to reiterate my statement on the long-term effects of age compression, however; that is always going to be an issue with the company, although getting the stock at a higher yield might help to compensate for this concern. Nevertheless, Hasbro is a worthy idea for an investor's portfolio.

Play around with some more articles on Hasbro:

Marvel and Hasbro are both recommendations of the market-crushing Motley Fool Stock Advisor newsletter. To see what other companies have been selected, take a free 30-day trial today. Mattel is a former Inside Value pick.

Fool contributor Steven Mallas owns shares of Marvel Entertainment. As of this writing, he was ranked 15,209 out of 22,175 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool's disclosure policy is more than meets the eye.


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