Hasbro Earnings on Monday: Investors Hope the (Earnings) Force Awakens Again

Hasbro's brand growth strategy. Image source: Hasbro.

Game time's approaching for Hasbro (HAS 2.65%), which is slated to report its third-quarter earnings before the market opens on Monday, Oct. 19.

Let's look at what analysts expect and some key areas to focus on in the leading toy and game maker's report.

Data source: Yahoo! Finance. *Two of the four beats were by just $0.01.

Will Hasbro's 2015 game involve a hat trick?
While we won't know until Monday whether Hasbro will beat earnings estimates again, it bodes well for full-year 2015 results that the company crushed first-quarter estimates and solidly beat second-quarter ones.

At face value, expectations of 0.4% revenue growth and 4.8% earnings-per-share growth appear rather weak. However, it's important to keep in mind two factors. First, the global toy industry has weathered tough times in recent years, as competition for kids' attention and parents' wallets has greatly intensified due to the immense popularity of electronic gadgets. Second, foreign exchange currency headwinds have been hurricane force lately. Viewed in this context, these numbers are stronger than they seem, and suggest that Hasbro's turnaround remains on track. The company has, in fact, been performing much better than main rival Mattel, as its iconic Barbie line has been especially hard hit in recent years.

Expect more currency headwinds
The strong U.S. dollar has been walloping the dollar-denominated revenue growth of U.S. companies, such as Hasbro, that do a significant amount of international business. Naturally, the currency impact flows through to the bottom line. 

Simply looking at top-line growth for these companies underestimates how well their underlying businesses are performing. It's best to consider revenue growth on a constant-currency basis. For the first half of 2015, for instance, Hasbro's flat top-line growth equated to a 9% jump, excluding the currency effect.  

Star Wars: The Force Awakens flies into results this quarter

Image source: Hasbro.

On Sept. 4 -- "Force Friday" -- Hasbro rolled out its initial lineup of The Force Awakens-based toys to retailers. It pulled out all the stops in the marketing of this event, and retailers followed suit.

So, Hasbro's third-quarter results will contain nearly a month's sales of toys based on this upcoming Disney (DIS 3.27%) film, which will open in theaters on Dec. 18. These toys should put some force in Hasbro's financial results for some time. CEO Brian Goldner said during last quarter's conference call that the company will introduce new characters and products in waves throughout the remainder of this year and 2016. He added that total revenue generated should be "somewhat equally split between the two years." Early sales figures for these toys should also give Disney investors some indication just how lucrative The Force Awakens will be to Disney's cofffers. 

Look for franchise and partner brands to power preschool and boys categories
It should be helpful for investors to know that Hasbro slices and dices its business in three ways:

• Brands: franchise, challenger, and partner
• Product categories: boys, girls, preschool, and games
• Segments: U.S. and Canada, international, and entertainment and licensing

Growth in the preschool and boys categories has been fueling the company's 2015 results and we can probably expect more of the same.

On a constant-currency basis, flat first-half growth translated to 9% growth. Data source: Hasbro's second-quarter earnings presentation. 

Revenue from franchise brands increased 3% in the first half, or a solid 11% on a constant-currency basis. Five of the company's seven franchise brands -- Play-Doh, Nerf, Littlest Pet Shop, Monopoly, and My Little Pony -- and all three of its partner brands -- Star Wars, Marvel, and Jurassic World -- grew revenue, absent currency effects. (Hasbro has strong ties to Disney, as two of its three partner brands -- Star Wars and Marvel -- are owned by the world's most beloved entertainment company.) 

This quarter, we should once again see movie-based toys making major contributions to Hasbro's coffers. The company is the toy licensee for three of last summer's biggest blockbusters: Marvel's Avengers: Age of Ultron, Universal's Jurassic World, and Universal's Minions. The first two films were released in North America in the second quarter, while Minions began delighting audiences in the third quarter, on July 12.

Hasbro's playing a long-term game
Long-term investors shouldn't get too hung up on a single quarterly report, especially for entertainment-related companies such as Hasbro, where one blockbuster movie can significantly skew year-over-year comparisons. It's best to use a wider time lens when viewing past results. It's even more important, however, to gauge how well a company seems to be setting itself up for future growth.

Hasbro's done a commendable job through the first half of 2015 of leveraging its brands and has some significant catalysts for growth in its playbook. In addition to The Force Awakens hitting the silver screen in mid-December, notable among these catalysts is the transitioning in 2016 of the global rights from Mattel to Hasbro to develop dolls based on Princess characters and the immensely popular Frozen.