Bear of the Day: Hasbro (HAS)

Hasbro (HAS) is one of the world’s biggest toymakers and game manufacturers. Popular and legacy brand names include Monopoly, Play-Doh, Nerf, My Little Pony, Mr. Potato Head, and Playskool.

Tariffs Hit Q3 Earnings Hard

The ongoing trade war between the U.S. and China has deeply impacted Hasbro’s financial performance this quarter, as many retailers delayed or even cancelled toy and game orders for the upcoming holiday season due to the tariff threat.

Both the company’s top and bottom lines missed the Zacks Consensus Estimate. In particular, revenue of $1.58 billion was basically flat compared to the prior year; analysts were expecting a 9% gain.

Breaking sales down by segment, Franchise brands slumped 8% and Hasbro gaming fell 17% year-over-year. One bright spot was the company’s Partner brands, up 40% over last year; this strong growth was due to many of Disney’s (DIS) properties selling well, like Marvel, Frozen 2, Star Wars, and Descendants 3.

"The threat and enactment of tariffs reduced revenues in the third quarter and increased expenses to deliver product to retail,” said CEO Brian Goldner in the company’s earnings release.

Analysts have turned bearish on Hasbro, with four cutting estimates in the last 60 days for fiscal 2019.

While earnings are expected to see positive growth for the year, the Zacks Consensus Estimate has dropped 69 cents for that same time period from $4.76 to $4.07 per share.This sentiment has stretched into 2020. While earnings could continue positive growth, our consensus estimate has dropped 44 cents in the past two months.

HAS is now a Zacks Rank #5 (Strong Sell).

Shares of the toy retailer have gained only 5.4% since January—HAS plunged as much as 18% in the wake of its earnings report—compared to the S&P 500’s rise of about 11.6%.

Bottom Line

Looking ahead, Goldner anticipates that additional tariffs (those scheduled to take effect on December 15) will likely continue to impact retailers’ direct import shipments from China. 85% of its toys are manufactured in China; even though Hasbro is planning on shifting some production to countries like Vietnam and India, any threat of tariffs will likely continue to weigh on shares.

Investors who are interested in adding a toys and games peer to their portfolio should take a look at Zacks Rank #3 (Hold) ranked Take Two Interactive (TTWO), up almost 22% year-to-date. Looking at the broader Consumer Discretionary sector, investors could also consider Roku (ROKU) or Callaway Golf (ELY).

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Take-Two Interactive Software, Inc. (TTWO) : Free Stock Analysis Report
 
Roku, Inc. (ROKU) : Free Stock Analysis Report
 
Hasbro, Inc. (HAS) : Free Stock Analysis Report
 
Callaway Golf Company (ELY) : Free Stock Analysis Report
 
The Walt Disney Company (DIS) : Free Stock Analysis Report
 
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