Hasbro Bests Mattel in Slow Post-Holiday Quarter

The Pawtucket, R.I.-based maker of Monopoly and Transformers actions figures on Monday reported first-quarter earnings of 25 cents a share, up from 19 cents a year earlier. Wall Street analysts surveyed by Thomson Financial expected earnings of 14 cents a share.

Hasbro posted revenue of $704.2 million, a 13% increase from $625.3 million a year ago, though without the foreign currency appreciation factor, it would've been only a 9% increase. The Street expected revenue of $583 million.

Hasbro Chief Executive Al Verecchia, who is slated to retire from the top job next month, said on a conference call that strong showings from well-known brands surpassed low seasonal expectations.

"Even though this is only the first quarter, we are very pleased with our performance thus far," he said. "We had a strong 2007 and the momentum continues into 2008 with a number of brands doing very well including Transformers, Star Wars, Littlest Pet Shop, Playskool, Baby Alive, My Little Pony, as well as a number of our board games."

Hasbro announced in February that its operations chief, Brian Goldner, will take over the CEO role as Verecchia moves to chairing the board of directors.

"It was a huge first quarter last year, so it's hard to expect to do better when sales rose 43% a year ago," says Sterne Agee & Co. analyst Margaret Whitfield. "This is definitely a company that is branching out from basic toys into electronic entertainment and publishing and other avenues that should lend itself to having a higher value in the market."

The DVD release of the "Transformers" movie has extended the sales boom for the action figures and other licensed products, and Hasbro's other movie deals, including a sequel to the Michael Bay robot epic, will sustain momentum.

"The company's recent sales strength is noteworthy, as its Transformer line of toys sold well in Q1 according to our checks, and inventories at retailers were lean after the holiday season," Wedbush Morgan analyst Chris White wrote in a preview note published Friday. "In addition, we believe investors are positioning themselves for a strong opening for Marvel's 'Iron Man' film [on May 2], for which Hasbro is the exclusive toy licensee."

Sean McGowan, an analyst at Needham & Co, upgraded the stock to Buy from Hold in an April 14 note, writing that "we expect investors to look more to 2009 for valuation, and we expect 2009 to be a stronger year than 2008."

Whitfield says current and pending changes in management have also led to improvement in the preschool girls category, with brands such as Littlest Pet Shop, Playskool, Baby Alive and My Little Pony, is adding to the broad strength of its product offerings.

"This was a company that was board games and boys action figures," says Whitfield, "and every year, you couldn't figure out what boys' action toy would be hot."

But it's back on track as a company that can create multiple revenue streams for its best-known brands, from movie tie-ins and a new Transformers animated television series to deals with videogame publisher Electronic Arts (ERTS). Last August, the two agreed to make video, cellphone and other digital games for the Yahtzee, Scrabble and Tonka brands.

"If you can develop more of your brands into $300 million businesses or more, vs., say $30 million businesses, it's going to be a lot more profitable," Whitfield says of Hasbro's successful expansion and diversification. "Heretofore, they had lots of brands doing less than $100 million a year, and the focus now is to strengthen those key brands.

With a G.I. Joe movie set for an August 2009 release, that Hasbro brand should take of from its estimated $25 million a year business, though Whitfield says it's hard to estimate the boost in advance. Other movies with Hasbro merchandise are opening sooner, with Iron Man slated for May 2, the next Indiana Jones movie on May 22 and the next Hulk film on June 13.

As a diverse portfolio of brands that are reaching the market though a range of channels, it appears Hasbro is hitting its (Optimus) prime.