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Hasbro (HAS)
Hasbro's Earnings Were No Fun
Hasbro, the toy-making giant behind games like Monopoly and Scrabble, reported a lower than expected profit for the end of their Q4. Their earnings of $93.6 million were lower by 30 percent compared to last year and their revenue was down by 5.1 percent. Still, the company was optimistic about 2009. They stated that if the economy does not worsen and trends in the US dollar do not adversely change, they expect growth in both earnings and revenue. Investors jumped on this information and sent the stock soaring by over 5 percent in early trading. However, the economy is still falling, and the US dollar is acting less predictably in response to the debates over the economic stimulus. Furthermore, there is no visible end in sight to the current recessionary circumstances. So, can investors really count on the company's guidance in 2009?
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Perhaps, yes. In looking at historical facts, toys have been more resilient to recessionary situations in the past than other industries. While it is true that the most recent recession pulled the company's Q4 earnings down by 30 percent, other industries have been reporting losses and in fact, Hasbro's stock has only declined by 20 percent this past year. In response, steps are being taken to mitigate losses tied to the economic slump in order to lower operating costs. They have also raised prices for toys in Q1 due to higher packaging prices. This follows a similar plan announced by Mattel (MAT: Charts, News, Offers) last week. However, their trump card comes from having exclusive rights to manufacture toys associated with the second Transformers movie and the GI Joe movie - both of which are scheduled for theaters this year in June and August respectively.
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If the economic stimulus package is accepted and passed, then all other factors being constant, the strength of the US dollar will decline. This is favorable to the company as it creates opportunities for more exports. Furthermore, it means toys sold abroad would become cheaper for international consumers. If so, sales volumes would increase and this would allow them to conduct more business in other nations. It is doubtful that approved stimulus funds will be spent all at once so the downward effect on the dollar may be prolonged over a period of one year or more. Right now, the US dollar is relatively weak in comparison to currencies like the Japanese Yen and the Euro. Anticipated measures may be taken by other nations to weaken their currency as well, thus making the dollar grow stronger.
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On the other hand, growth will be difficult to come by due to high unemployment levels. Many households are struggling with mortgage payments and other similar expenses, so toys may be lower in priority. The latest jobs data released last week indicated highs that were beyond economist predictions. In addition, current trends are showing that the toy industry is not as resilient to the recession as they have been in the past.
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The company did not buy back shares in the fourth quarter signaling that either they have other uses for the funds, or earnings were not as high as anticipated. Neither dividends nor jobs were cut today though, so it may mean that Hasbro is shoring up money in case this economic storm becomes bumpier. Mattel, the only other toy-maker larger than Hasbro, posted a lower than expected profit-loss of 46 percent. Even though the manufacturer does not normally issue public profit targets, analysts predicted they would generate a Q1 loss. Whether or not the number 2 toy maker will follow in its footsteps remains to be seen, though the company itself remains optimistic. Investors are agreeing with them for now. By this time next year though, we will see just how accurate their forecasts are. If things worsen, we will know sooner when Hasbro releases their quarterly earnings reports.
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