Pat McKeough responds to many personal questions about buying stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for the Inner Circle.
This week, an Inner Circle member asked about one of the world’s biggest toy companies. Hasbro’s revenue and earnings fell off in the most recent quarter and Pat analyzes the company’s different divisions to see where future growth may come from.
Q: Hi Pat: Could I ask your view on Hasbro? Thanks.
A: Hasbro, (symbol HAS on New York; www.hasbro.com), is one of the world’s largest makers of toys and games. Its key brands include G.I. Joe, Transformers, Mr. Potato Head, Nerf, Tonka and Monopoly.
Hasbro also makes and sells preschool toys under the Playskool brand and games and toys for girls and boys under the Milton Bradley, Parker Bros. and Wizards of the Coast labels. The company also licenses its properties to third parties for promotional and merchandising purposes.
In the three months ended July 1, 2012, Hasbro’s revenue fell 10.8%, to $811.5 million from $908.5 million a year earlier. If you exclude the negative impact of foreign exchange rates, revenue fell 7%.
Earnings declined 25.2%, to $43.4 million, or $0.33 a share, from $58.1 million, or $0.43 a share. But even with the drop, the latest earnings beat the consensus estimate of $0.23 a share because Hasbro did a good job of lowering its costs.
The company’s Entertainment & Licensing segment continues to perform well. In the latest quarter, this division’s sales rose 58.8%, to $43.2 million from $27.2 million.
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Company’s HUB network now distributes in over 170 countries
Hasbro is profiting from its HUB network joint venture, which it operates in partnership with Discovery Communications, and other broadcasters worldwide. HUB now distributes Hasbro-branded programming in over 170 countries. This content, along with movie promotions, helps increase demand for Hasbro’s toys and games.
The company owns the licensing rights to a number of popular movie and comic brands, such as Marvel, so it’s profiting from strong box office success for Marvel’s The Avengers and the release of the new Spider-Man film. New releases next year will include movies for G.I. Joe, Iron Man, Star Trek, Wolverine and Thor.
Hasbro’s sales fell 19.5% in the U.S. and Canada in the latest quarter, to $406.6 million from $505.0 million a year earlier. International sales fell 3.7%, to $360.5 million from $374.5 million. But if you exclude the negative impact of foreign exchange rates, international revenue rose 5%.
Hasbro’s long-term debt of $1.4 billion is a reasonable 28.6% of its market cap. The company holds cash of $779.9 million, or $5.99 a share.
Hasbro trades at 13.2 times this year’s forecast earnings per share of $2.85. The shares yield 3.8%.
In the most recent Inner Circle Q&A, Pat looks at whether Hasbro can push its revenues and earnings higher after a disappointing quarter. He also examines its potential for continued growth in international sales, especially in emerging markets. He concludes with his clear buy-hold-sell advice on this stock.
COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members
When the economic news is negative, do you distinguish between so-called “staple” consumer stocks—food and other necessities—and “discretionary” consumer stocks, like toys? Or you do think any consumer stock with good growth prospects, especially overseas, is a good investment at any time? Let us know what you think.
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