Can Hasbro Keep Playing Hard in 2015?

Monopoly is a key part of the toy maker's reputation. Source: Hasbro.

If you follow investing legend Peter Lynch's advice to invest in what you know, Hasbro (HAS 0.42%) is a natural pick, with the toy maker having had a formative childhood influence for several generations. In a tough environment that sent shares of rival Mattel (MAT 0.86%) down substantially in 2014, Hasbro held its ground. Yet even as the company prepares to announce its fourth-quarter financial results on Monday, Hasbro is also dealing with a transition at its top levels that will have its current CEO take on the dual role as board chairman. Shareholders hope Brian Goldner will make 2015 a more lucrative year from a return standpoint even as he fleshes out his strategy for the toy maker going forward.

From Playskool and Monopoly to Nerf and Twister, Hasbro has been an iconic part of American culture for decades. Yet with the rise of multimedia entertainment and licensing tie-ins, the stakes have gotten much larger for Hasbro, Mattel, and their competitors in fighting for the most popular new franchise-linked toy lines. Let's take an early look at what's been happening with Hasbro over the past quarter and what we're likely to see in its report.

Stats on Hasbro

Source: Yahoo! Finance.

Will Hasbro earnings make the grade?
Investors have cut back their views on Hasbro earnings in recent months, slashing their estimates for the current quarter by $0.08 per share and cutting projections for the full 2015 by between 2% and 3%. The stock hasn't gone anywhere, either, declining about 2% since the end of October.

Hasbro's third-quarter earnings reflected the advantage the toy maker has had over Mattel lately. Even as Mattel's sales lagged, Hasbro posted a 7% gain in revenue, driven by 22% growth in the boys' toy division. Moves including enhancing the attractiveness of the Nerf brand to girls through the Rebelle line of toys and making the most of licensing deals for products tied to Marvel, Star Wars, and Transformers characters all contributed toward the successful quarter.

Sources: Mania.com, Hasbro.

But the big news for the quarter came in November, when rumors emerged that Hasbro was looking at potentially acquiring studio DreamWorks Animation (DWA +0.00%). The idea of bringing content production in-house certainly is in sync with the importance of vertical integration in the industry, with Disney (DIS 1.66%) being a great example of how combining entertainment with retail-oriented operations can be extremely lucrative. Yet investors seemed happier when Hasbro ended talks with DreamWorks, perhaps because they saw better prospects for Hasbro as a stand-alone company unburdened by DreamWorks' challenges. In addition, the acquisition could have jeopardized Hasbro's efforts to deepen its licensing relationship with Disney, DreamWorks' moviemaking rival.

Frozen has reawakened the toy industry. Source: Disney.

One concern for investors is that toy sales have suffered from a long-term stagnation in growth. The success of Disney's Frozen helped the industry break out of that slump somewhat, with overall retail sales climbing 4%, according to research firm NPD Group. Yet even as demand rose for building sets, action figures, puzzles, and board games, Hasbro has seen tough results in its preschool sales, as demographic shifts in the U.S. have left fewer young children to buy those toys.

Moreover, Mattel's results were relatively poor for the holiday quarter, leaving Hasbro in a position in which it has to overcome industry headwinds. Mattel's sales fell 6% worldwide, with its Barbie, Fisher-Price, and American Girl brands all suffering lower sales. Hasbro investors should expect Mattel to fight back hard, potentially igniting an all-out toy battle that could hurt both companies if it lasts very long.

In Monday's earnings report, it will be important to see whether Hasbro can keep outpacing Mattel. If it cannot once again demonstrate its competitive advantages, Hasbro could fall prey to disappointment, especially if holiday results fall short of expectations. In the long run, Hasbro will need all of its opportunities to pay off in order to give investors the growth they want to see.