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Transformers Rescue Hasbro From Recession
I wonder if the people who came up with the Transformers idea back in the day ever had any inkling that the concept would bolster sales in the middle of U.S. economic debacle? Regardless, apparently Transformers not only save mankind from evil, but also Hasbro (NYSE:HAS) from the recessionary environment as well.
On Monday, Hasbro reported first quarter earnings grew 14% based on strong sales of Transformers, Littlest Pet Shop, Star Wars and board games. In all, the company earned $37.5 million (25 cents per share) in the first quarter, which was above the $32.9 million (19 cents per share) it earned over the same period last year. The results were in line with analyst expectations.
Solid Products Sell
Internationally, Transformers were in high demand, too. Top international performers were Transformers, Littlest Pet Shop, Playskool, My Little Pony and board games. All helped to fuel a 22% increase in net income outside of the U.S.; however, international results were almost cut in half, with international net sales coming in at 12%, due to the declining U.S. dollar.
The bottom line, though, is that even with the U.S. dollar trimming international profits, Hasbro has a strong line of in-demand products, with the proof of the pudding in the international segment reporting an operating profit of $13 million in the first quarter, over the $1.8 million loss in the same quarter last year.
Outlook Looks Good
Executive Vice President and CFO David Hargreaves added more good news to a strong quarter. "We continue to believe we should grow both revenues and earnings per share in 2008," Hargreaves said. "Our balance sheet is strong and we continue to generate good cash flow, which is being returned to shareholders via our increased dividend and the share buyback program."
What's more, CEO Alfred Verrecchia stated, " While it's early in the year and there is still a lot of business to be done, our first quarter performance reinforces the confidence we have in achieving our full-year financial goals."
All of the above is part of the reasoning behind the board's recent decision to increase the first quarter dividend by 25%, from 4-cents per share to 25-cents per share.
Competition Suffers
On the other side of the coin on Monday, toymaker Mattel (NYSE:MAT) failed to meet Wall Street's expectations, reporting a loss of 13 cents per share in the first quarter over last year's profit of 3 cents per share. Revenue declined 2% year-over-year.
Toy-industry analysts are now likely looking toward JAKKS Pacific (Nasdaq:JAKK) for more guidance on overall 2008 toy-sales outlook. JAKKS owns Pokemon and Hanna Montana lines and reports earnings on Wednesday, April 23. The Associated Press reported BMO Capital Markets analyst Gerrick L. Johnson as seeking a 6% increase in first quarter sales. (For related reading, check out Can Earnings Guidance Accurately Predict The Future?)
One area of concern shadowing the larger industry is overall caution coming from retailers, specifically seen in inventory levels. When the economic environment becomes cloudy, retailers often lower inventory to avoid overextending themselves should sales falter. This will take its toll on Toy makers, especially if gas prices stay high. In the Energy Outlook report, the Energy Information Agency recently said, "It is important to note, however, that even if the national average monthly gasoline price peaks around $3.60 per gallon this summer, it is possible that prices at some point will cross the $4 per gallon threshold."
At the end of the day, rising gas prices take money out of retailers' pockets as consumers divert discretionary spending from durable goods to fill their tanks.
Conclusion
Kids are kids, and kids always want toys. Toy makers with hot products like Transformers and Hanna Montana will likely see increased sales in the quarters to come, no matter where gas prices go. Overall, Hasbro reported a strong first quarter and is now well poised to make 2008 a great year, even is the economy is in the dumps.
To learn more about defensive picks for a down market, read Recession-Proof Your Portfolio and Bear-Proof Your Retirement Portfolio.
On Monday, Hasbro reported first quarter earnings grew 14% based on strong sales of Transformers, Littlest Pet Shop, Star Wars and board games. In all, the company earned $37.5 million (25 cents per share) in the first quarter, which was above the $32.9 million (19 cents per share) it earned over the same period last year. The results were in line with analyst expectations.
Solid Products Sell
Internationally, Transformers were in high demand, too. Top international performers were Transformers, Littlest Pet Shop, Playskool, My Little Pony and board games. All helped to fuel a 22% increase in net income outside of the U.S.; however, international results were almost cut in half, with international net sales coming in at 12%, due to the declining U.S. dollar.
The bottom line, though, is that even with the U.S. dollar trimming international profits, Hasbro has a strong line of in-demand products, with the proof of the pudding in the international segment reporting an operating profit of $13 million in the first quarter, over the $1.8 million loss in the same quarter last year.
Outlook Looks Good
Executive Vice President and CFO David Hargreaves added more good news to a strong quarter. "We continue to believe we should grow both revenues and earnings per share in 2008," Hargreaves said. "Our balance sheet is strong and we continue to generate good cash flow, which is being returned to shareholders via our increased dividend and the share buyback program."
What's more, CEO Alfred Verrecchia stated, " While it's early in the year and there is still a lot of business to be done, our first quarter performance reinforces the confidence we have in achieving our full-year financial goals."
Competition Suffers
On the other side of the coin on Monday, toymaker Mattel (NYSE:MAT) failed to meet Wall Street's expectations, reporting a loss of 13 cents per share in the first quarter over last year's profit of 3 cents per share. Revenue declined 2% year-over-year.
Toy-industry analysts are now likely looking toward JAKKS Pacific (Nasdaq:JAKK) for more guidance on overall 2008 toy-sales outlook. JAKKS owns Pokemon and Hanna Montana lines and reports earnings on Wednesday, April 23. The Associated Press reported BMO Capital Markets analyst Gerrick L. Johnson as seeking a 6% increase in first quarter sales. (For related reading, check out Can Earnings Guidance Accurately Predict The Future?)
One area of concern shadowing the larger industry is overall caution coming from retailers, specifically seen in inventory levels. When the economic environment becomes cloudy, retailers often lower inventory to avoid overextending themselves should sales falter. This will take its toll on Toy makers, especially if gas prices stay high. In the Energy Outlook report, the Energy Information Agency recently said, "It is important to note, however, that even if the national average monthly gasoline price peaks around $3.60 per gallon this summer, it is possible that prices at some point will cross the $4 per gallon threshold."
At the end of the day, rising gas prices take money out of retailers' pockets as consumers divert discretionary spending from durable goods to fill their tanks.
Conclusion
Kids are kids, and kids always want toys. Toy makers with hot products like Transformers and Hanna Montana will likely see increased sales in the quarters to come, no matter where gas prices go. Overall, Hasbro reported a strong first quarter and is now well poised to make 2008 a great year, even is the economy is in the dumps.
To learn more about defensive picks for a down market, read Recession-Proof Your Portfolio and Bear-Proof Your Retirement Portfolio.
by
Mark Whistler
Mark Whistler is the author of the book "Trading Pairs", published by John Wiley & Sons in 2004, and he is one of two creators of PairsTrader.com. Mark's new book, "Trade With Passion and Purpose: Spiritual, Psychological and Philosophical Keys to Becoming a Top Trader" is available at Amazon.com. Mark's trading specialty is statistical arbitrage, although he writes and conducts research for the Oxford Club and Mt. Vernon Options Club. Some of his other writing credentials include The Motley Fool, Active Trader Magazine, BullMarket.com, OptionInvestor.com and Working-Money online.
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