Hasbro For The Win – Seeking Alpha
Hasbro (NASDAQ:HAS) is a top play in the toy space. Period. End of article. Followers of my work know I have described many times the phenomenon that occurs every now and again known as the ‘toy-cycle.’ As this has been covered many times, I won’t go into great detail, but will say that this so-called cycle is where new products are released year-after-year piggybacking on successful movies or other entertainment related venues. We have been in a cycle for a few years. All major toy companies have been good stocks to own and trade over the last few years. We know toy companies have moved away from traditional toys and board games into more interactive products. The traditional toy industry is still kicking, but technology like electronic/computer-based toys, apps and complex interactive toys are now extremely popular. Hasbro is a stock I have called a winner.
That said, what can we expect looking ahead? I think Hasbro is set to continue its slow run higher as its most recent earnings report was solid. The report reveals the consumer is strong, but there are of course threats to the company. With this the first major toy company reporting, the quarterly report provides a basis for where the sector may be heading. I of course have extremely high expectations as this is Q4, and is the blockbuster quarter in the toy space, for obvious reasons. To my surprise this quarter was actually much stronger than I expected, at least on the headline numbers. It delivered a strong top line and bottom line beat versus analyst estimates. Net revenues for Hasbro’s Q4 2016 were 11% higher year-over-year. Revenues were $1.63 billion beating estimates by a strong $130 million.
As I have already discussed in most articles this earnings season, the strong dollar has been a major issue for many domestic companies with international sales. It has, of course, impacted Hasbro which does a lot of international business as well. So if we look at revenues on a constant dollar basis, it would back out a $11.9 million impact. That is incredible strength in sales. Net earnings for the quarter were up a solid 10%. They came in at $192 million or $1.52 per share. Adjusted net earnings were $207.4 million, or $1.64 per share. This adjustment stems from a $32.9 million, or $0.12 per share, goodwill impairment charge related to Backflip Studios. This is a solid improvement year-over-year. As a whole, earnings beat by a solid $0.37.
So sales continue to be pretty strong and the company is managing expenses leading to strong earnings. Categories were strong throughout the year in all segments, except for Preschool, which saw the only decrease in the year (down just 1%). Worth noting, the company will no longer report Boys, Girls, Games and Preschool categories from now on. Instead, it will report by brand portfolio. Commenting on the quarter, Brian Goldner, Hasbro’s president and CEO stated:
“Hasbro’s global team delivered a tremendous 2016. We reached the $5 billion revenue mark for the first time in company history, we improved profitability and we invested to grow Hasbro over the long-term while increasing our dividend and share repurchase levels. Hasbro’s foresight to build brands led by storytelling, consumer insights and innovation, combined with the relentless execution of our Brand Blueprint including investments in entertainment and digital gaming, is driving our business and creating long-term strategic differentiators for Hasbro. We are well positioned for a successful 2017 and the continued advancement of Hasbro’s brand-building capabilities for years to come.”
The quote tells me that the ‘toy cycle’ continues to be in full swing. Looking ahead, I continue to like the company. The company is fundamentally strong as a whole. What is more, I love the shareholder-friendly nature of the company. In 2016, Hasbro returned $400.2 million to shareholders including $248.9 million in cash dividends. The dividend has also been hiked once again. The new quarterly cash dividend is $0.57 per share. This represents an increase of $0.06 per share, or 12%, from the prior dividend of $0.51. Further, Hasbro repurchased 1.89 million shares at a total cost of $151.3 million and an average price of $79.86 per share in 2016 and has over $300 million remaining on its repurchase authorization. When this stock dips, buy it for the long-term.
Note from the author: Quad 7 Capital has been a leading contributor with Seeking Alpha since early 2012. If you like the material and want to see more, scroll to the top of the article and hit “follow.” Quad 7 Capital also writes a lot of “breaking” articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box for “Real-time alerts on this author” under “Follow.”
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.