Kids enjoy playing with toys, and everyone loves playing games. So it might be wise to consider investing in a toys and games company. Two of your best options are Hasbro (HAS +4.98%) and Mattel (MAT +0.21%). Both companies delivered solid top- and bottom-line results in their most recent quarters, but one of these companies is likely to outperform the other for several reasons.
Hasbro's recent results
Hasbro's revenue increased 2% year over year in its third quarter. Net earnings also improved to $193.0 million from $164.9 million in the year-ago quarter. International revenue improved 11% (with emerging markets seeing growth of 22%), whereas net revenue in the United States declined 5%.
On a categorical basis for revenue (year over year):
| Category | Revenue Change |
|---|---|
|
Boys |
Down 17% to $392.0 million |
|
Girls |
Up 27% to $388.7 million |
|
Games |
Up 6% to $387.4 million |
|
Preschool |
Down 2% to $202.0 million |
Breaking down the categories, strength from Transformers and Star Wars in the boys category was more than offset by weakness in Marvel and Beyblade.
The improvement in the games category was mostly due to strength in Magic: The Gathering and Elefun & Friends.
The significant increase in the girls category stemmed from Furby, My Little Pony (including My Little Pony Equestria Girls), and Nerf Rebelle (recently launched). This, by the way, represents five consecutive quarters of growth in the girls category.
Despite the decline in the preschool category, Hasbro is still seeing high demand for Play-Doh, Sesame Street, Transformers, and Rescue Bots.
Hasbro's recent partnership
Hasbro recently partnered with Electronic Arts (NASDAQ: EA) to introduce Monopoly Bingo and Monopoly Slots. These games are free to download at the App Store, Google Play, and the Amazon Appstore. You can play Monopoly Bingo and/or Monopoly Slots on your Apple or Android device, as well as on Kindle Fire.
Monopoly has been played by more than 1 billion people in 111 countries since 1935. It's clearly popular due to its fun and ambitious theme. Bingo is loved by millions because it's easy to play; a 5-year-old has the potential to master it. As far as slots go, take a look at the busloads of people traveling to a casino on any given weekend. If they can't access the real casino during the week, they might find enjoyment in the free Monopoly version of the game as an alternative.
What's most important here is that Hasbro will be aided by the marketing power of Electronic Arts, which generated revenue of $3.8 billion in fiscal year 2013 and has 300 million registered players (for all games) in more than 200 countries. This also works the other way around -- Electronic Arts will be aided by Hasbro's marketing power, which has developed many household-name hits (see the brands above) over the years.
Hasbro seems to have a lot going for it. Now let's take a gander at Mattel.
Growth in every region
In the company's third quarter, Mattel saw growth in every region, with net sales improving 6% year over year, and EPS increasing to $1.21 from $1.04 in the year-ago quarter.
Girls and boys brands grew at an 8% clip, thanks to Barbie and Monster High. The strengths in these brands were enough to offset weakness in Hot Wheels, Matchbox, and Tyco R/C.
Fisher-Price sales were flat year over year, so not much to talk about here, other than that flat should be seen as a weakness.
American Girl Brands saw robust growth of 20%, thanks to Saige, the 2013 Girl of the Year, My American Girl, Bitty Baby, and Historical Dolls. Through a partnership with Indigo Books & Music, Mattel is expanding into Canada with its American Girl brand. If American Girl takes off in Canada like it did in the United States, then it could significantly aid the top line.
Mattel also recently launched Ever After High -- new stories and characters based on old fairytales. This brand will be marketed toward tweens. It's already available in 14 countries, and that will grow to 30 countries next year. So far, Ever After High has its own website, Facebook page, YouTube channel, and even a novel, The Storybook of Legends, which is now a New York Times bestseller. A second book is due out in the spring.
Peer comparisons
If you look at the top-line performances for these two companies over the past year, you will see that Mattel is a clear leader, which stems from broader geographic and brand demand:
HAS Revenue (TTM) data by YCharts.
However, Hasbro is aiming for holiday innovations and geographic expansion to drive growth.
Mattel has also outperformed Hasbro on the bottom line over the past year:
HAS EPS Diluted (TTM) data by YCharts.
Hasbro is looking to improve on the bottom line through cost-cutting measures (aligning resources and costs), which is expected to lead to annual savings of $100 million by 2015. Hasbro also consistently buys back its own shares, buying back $30 million worth in the third quarter. However, Mattel bought back $259 million worth of its own stock in the third quarter.
While Hasbro has potential to improve, Mattel looks like more of a proven winner at this point in time. If you believe in management track records, then also consider total shareholder returns (stock appreciation plus dividends) over the past five years:
HAS Total Return Price data by YCharts.
The bottom line
Hasbro is a solid company that's seeing growth in several categories. It also looks to drive its top line though innovation and geographic expansion. On the other hand, Mattel is already in the midst of accomplishing these goals, and it has a more impressive track record.
