For toy makers, the holiday season is the most important time of year, and Hasbro (NASDAQ:HAS) has worked hard to expand its reach and make more products that appeal to kids of all ages. In recent quarters, the company has done a great job of topping longtime rival Mattel (NASDAQ:MAT), and investors wanted to see the same outstanding performance from Hasbro in its fourth-quarter financial report. For investors, Monday morning's release of that report was like opening a gift on Christmas, as Hasbro showed resiliency even in the face of some tough conditions. Let's take a closer look at how Hasbro did and what its results say about how Hasbro will do in 2015.
How Hasbro's holidays went
Hasbro's results were somewhat mixed, as the company's 1% growth in revenue to $1.30 billion fell short of the $1.33 billion that investors were looking for. Yet most of the drag on sales came from the strong U.S. dollar, with Hasbro saying that currency impacts cost the company $75 million in sales and that revenue gained 7% on a constant-currency basis. Meanwhile, Hasbro's bottom line was strong, with adjusted earnings per share of $1.22 coming in better than analyst projections even after excluding some one-time items that sent GAAP net income higher still.
From a geographical standpoint, Hasbro had greater success internationally throughout 2014 than it did in its domestic markets during the quarter. In the U.S. and Canada, sales rose at only a 1% pace for the year, and operating profits climbed by 7%. Internationally, Hasbro posted 8% growth in sales and 15% higher operating profits, and with those figures measured in U.S. dollars, they hide even greater strength in local-currency terms. The Asia-Pacific region was particularly strong during the quarter, and for the year, emerging-markets revenues climbed at an impressive 20% pace, with solid results from Latin America also contributing to Hasbro's success.
Hasbro's business breakdowns showed some disparities within the company, though. For the quarter, the boys' toy division once again saw the strongest performance, with sales rising 21%. But for both the girls' toys and the games segments, revenue fell, with the girls' category suffering the most with a 10% drop. Hasbro attributed the gains in the boys' segment to Marvel, Transformers, and Nerf, and it emphasized the 2% gain in girls' toy sales for the full 2014 year. The preschool category also kept underperforming, with a slight drop in sales in the fourth quarter closing the year with a 4% decline.
How will Hasbro play in 2015?
One growth area that has gotten relatively little attention is Hasbro's entertainment and licensing segment. The business is still small, making up just 5% of Hasbro's overall sales in 2014. Yet the pace of its growth has been faster than the rest of Hasbro, with sales jumping 10% in the fourth quarter and 15% in 2014 as a whole. Profits rose even faster, with gains of 37% in the quarter, and the unit's margins more than tripled what Hasbro's domestic segment posted for the holiday season.
CEO Brian Goldner once again stressed the importance of "building innovative brand experiences based firmly in global consumer insights and supported by compelling stories." With further investments in brand promotion expected in 2015, Hasbro is aiming at its mission of "Creating the World's Best Play Experiences," but CFO Deborah Thomas expects further headwinds on the foreign exchange front in 2015.
Yet what contributed most to the excitement over Hasbro today was its decision to raise its dividend by 7%, which will result in the company paying out $0.46 per share quarterly. The move lifts Hasbro's dividend yield to 3.3%, but it further emphasizes Hasbro's commitment to shareholders, with the company also having touted its repurchase of 8.5 million shares for $460.7 million during 2014. With expectations that it will continue returning more capital to shareholders, Hasbro should remain attractive to income investors.
Hasbro has a lot of potential growth ahead of it if it can successfully squeeze as much value as possible from its growing stable of licensed brands. If Hasbro keeps executing well, then investors can expect further dividend increases down the road, and with them, higher share prices could well follow.