Foolish Forecast: Hasbro Keeps the Lead Out

Hasbro (NYSE:HAS), one of the seemingly few toymakers without lead-paint issues, will report third-quarter financial results on Monday. Let's take a closer look to see what we're playing with.

What analysts say:

• Buy, sell, or waffle? Only one of the nine analysts covering the Motley Fool Stock Advisor recommendation is willing to play ball with a buy rating. Seven have decided to sit on the sidelines with a hold rating to see what pans out, while one other onlooker says to sell.
• Revenue. Sales are expected to grow at a healthy 9% clip and rise to $1.14 billion.
• Earnings. Profits, as well, are expected to grow 22% to $0.71 per share.

What Fools say:

What happened in last year's Q3:
Last year, the maker of some of my childhood favorites -- Chutes & Ladders, Battleship, and Lite-Brite -- offered investors some real dough, not Play-Doh, with its 23% jump in earnings per share. Star Wars action figures, No. 1 in the industry at the time, contributed only $69 million in revenue for the quarter, down by $58 million from the year before, with no new movies being tied in. Although Hasbro has an exclusive license to produce Star Wars toys until 2018, I think we can expect this franchise to contribute less and less as time goes on.

Hasbro amended a warrant agreement with Lucasfilm as part of its license extension that gives the company the right to make toys based on the Star Wars franchise. Last year's figures were affected from a mark to market adjustment for the Lucas warrants and recorded a non-cash expense of $19.8 million, or $0.09 per diluted share.

While North America is Hasbro's largest geographical area, accounting for about three-quarters of all revenue, sales growth from the region lagged compared with international performance. However, revenue overseas was helped along by a $9 million contribution for currency exchange rates.

What happened last quarter:
The new hot property for Hasbro was Transformers, tied into the release of the July 4 movie, which helped spur revenue growth of 31% in the second quarter. North American sales were bolstered by the toy lines' growth and saw a 24% jump in revenue. Its operating margin improved even before a $10 million charge related to a recall of its Easy-Bake Ovens.

Net income, however, fell to $4.8 million, or $0.03 per share, as a result of exercising an option to buy the last remaining warrants held by Lucas, and resulted in a charge of $36.5 million. Excluding the charge, profits were $0.24 per share, handily beating analyst underestimations of $0.18 a stub. The international markets continued to outstrip domestic sales, with revenues overseas rising 49% to $227.6 million. Transformers toys were a strong factor here as well.

Growth may be more difficult ahead, with no movie tie-ins planned for the foreseeable future.

One Fool says:
Selling toys based on movies has been a great boon for Hasbro; it has successfully used Star Wars and an exclusive five-year contract with Marvel Entertainment (NYSE:MVL) to boost sales. Although Hasbro has escaped the taint of lead-paint recalls that have dogged both Mattel and RC2 sales, it has no more blockbuster releases planned, so the company's share price may sag.

It might pay to postpone adding this stock to your toy chest.

Related Foolishness:

• Hasbro hasn't had a recall nightmare yet.
• But I still wonder whether consumers will turn to American-made toys this holiday for safety.