Hasbro Isn’t Playing Around: Why Jakk and Mattel Could Surprise

Source: Thinkstock

Hasbro (NASDAQ:HAS) is one of three toy companies that I like to trade when the fundamentals set up properly. The other competitors that I also trade are JAKK (NASDAQ:JAKK) and Mattel (NASDAQ:MAT). Each of the companies has had its ups and downs over the years. Hasbro, JAKK, and Mattel each focus on different toys and products, but they all cater to children primarily. Key to the success of each company is its marketing and deal making. For example, JAKK recently had deals to produce Godzilla toys, giving the company’s first quarter a boost. Both Hasbro and Mattel have made many similar deals over their histories.

In this article, I will cover Hasbro. Relative to JAKK and Mattel, Hasbro is in between the two when it comes to valuation. Hasbro trades at 21 times earnings, whereas Mattel trades at 15 times earnings, but JAKK has been losing money for some time. As Hasbro has just reported, we can gauge how other toy companies may perform during a difficult time of year for toy companies.

Hasbro did pretty well and reported an in-line quarter with estimates. Net revenues for Hasbro’s second quarter increased 8 percent to $829.3 million from $766.3 million in 2013. Net earnings for the quarter were $33.5 million, or 26 cents per diluted share, compared to $36.5 million, or 28 cents per diluted share, in 2013. Adjusted net earnings for the quarter came in at $47.3 million, or 36 cents per diluted share. This compares to $38.3 million, or 29 cents per diluted share, last year. Quite the improvement year over year.

But how did we get here? Digging a little deeper into the performance, we see that Hasbro’s U.S. and Canada segment brought in net revenues of $383 million. This was a decrease of 2 percent compared to $389.2 million in 2013. There was growth in the Boys and Girls product categories but some large declines in the Games and Preschool categories. The U.S. and Canada segment reported operating profit of $46.9 million versus $59 million in 2013.