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MarketWatch Report: Hasbro Second-Quarter Profit
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07-23-2007, 06:36 PM
DESTRO
Overlord of Evil
Join Date: Apr 2000
Location: Philly
Posts: 11,489
http://www.marketwatch.com/news/stor...8855CBB8AC5%7D
Quote:
Hasbro net drops 82% on Lucas buyback
Second-largest toymaker's sales soar on Transformers, Spider-Man toys
By Andria Cheng, MarketWatch
Last Update: 12:22 PM ET Jul 23, 2007
NEW YORK (MarketWatch) -- Hasbro Inc., the world's second-largest toymaker, said Monday second-quarter profit tumbled 82% after costs to repurchase warrants from "Star Wars" director George Lucas' film venture. But its sales surged on Transformers and Spider-Man toys.
Net income fell to $4.8 million, or 3 cents a share, down from $27.1 million, or 7 cents, earned a year earlier, the Pawtucket, R.I.-based company (HAS :Hasbro Inc
HAS30.80, -1.76, -5.4% ) said. Sales rose 31% to $691.4 million.
Costs to buy warrants for Hasbro's common stock from Lucasfilm Ltd. and Lucas Licensing Ltd. totaled $36.5 million, or 21 cents a share. Excluding those expenses, Hasbro said it earned $41.3 million, or 24 cents a share, for the latest quarter.
On that basis, profit beat the 18-cent average estimate of analysts surveyed by Thomson Financial. Sales also exceeded the average estimate of $648 million.
Chart of HAS
Orders increased for action figures and other toys tied to this year's releases of "Transformers" and Marvel Entertainment Inc.'s "Spider-Man 3" movies. FurReal Friends electronic animals, Littlest Pet Shop digital pets also lifted demand.
"This year you are having two big home runs" with Spider-Man and Transformers, said Tim Conder, an A.G. Edwards & Sons analyst, in an interview. "Will it grow at the rate next year that it did this year? Probably not. They are going to have to replace some of these revenues."
Hasbro shares fell 4.8% to $31 in midday trading after having gained more than 70% in the past year.
Transformers apparel
The company has sold more than 3 million Transformers action figures at stores since introducing them in early June ahead of the July 4 theatrical release, Chief Executive Al Verrecchia said on the call. Hasbro expects a continued boost in demand for Transformers as the movie opens later in Japan, U.K. and other countries. Both Transformers and Spider-Man 3 DVDs will be released in fall, which should further boost results, Verrecchia said.
"We do expect to grow the business in the second half," even though growth will be less than that in the first half, Verrecchia said on a conference call with analysts. "Retailers have been pleasantly surprised by Transformers. Spider-Man will certainly be a good contributor to profit this year."
Hasbro also plans to unveil a Transformers line of apparel, shoes and other products for the back-to-school season, and the company cited a possible sequel of the movie. Hasbro, which didn't finance the first movie, has yet to decide if it will participate in the financing for a possible sequel, management said.
Transformers was released by DreamWorks Pictures and Paramount Pictures, which is owned by Viacom Inc. (VIA :
viacom inc new cl a
Hasbro's North American sales surged 24% to 449.4 million, lifting profit in that unit even as the company had costs to recall Easy-Bake Oven products, which hurt profit by 4 cents a share during the quarter.
Sales outside of the U.S. increased 49% to $227.6 million, also paced by movie-tied products.
Lucas agreement
Hasbro and other toymakers often generate portions of their sales from products tied to movies and other entertainment properties even as they try to focus on their own staple of toy brands, including Hasbro's Mr. Potato Head.
Hasbro signed an agreement with Marvel in 2006 that gave Hasbro the rights to sell licensed toys tied to Marvel's properties that also include Fantastic Four and Hulk.
The Lucas warrants are part of an agreement Hasbro has had with Lucasfilm that gave it rights to make and sell toys tied to Star Wars entertainment. It paid Lucasfilm and its licensing operation $200 million in May to buy back the remaining warrants that Lucas held. Those warrants would have given Lucas the rights to buy a specific amount of Hasbro shares at a given price.
"They prevent Lucas from taking the stock" by buying back the warrants, Conder said.
Toys tied to Star Wars dropped during the quarter, though less than the company expected. In 2005, Star Wars toys, helped by that year's movie release, represented 16% of Hasbro's total revenue before their sales declined last year, the company said in its annual filing. End of Story
Andria Cheng is a MarketWatch reporter based in New York.
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