Hasbro 2Q net income rises above analyst expectations as cost cuts outpace revenue drop

Hasbro 2Q net income beats expectations

NEW YORK — Toy maker Hasbro Inc.’s second-quarter profit rose 11 percent as falling spending outpaced the drop in sales of Transformers and G.I. Joe toys, which had new movie tie-ins last year.

Net income rose to $43.6 million, or 29 cents per share, in the quarter that ended June 27. That’s up from $39.3 million, or 26 cents per share, a year earlier. Analysts polled by Thomson Reuters, on average, predicted net income of 24 cents per share.

Revenue fell 7 percent to $737.8 million from $792.2 million.

Though Hasbro’s net income beat Wall Street forecasts, its revenue fell short of the expectations of analysts for $748.3 million.

Costs for sales, advertising, amortization, selling, distribution and administration all fell during the quarter, as did Hasbro’s royalty payments, offsetting the decline in revenue.

Two revenue categories rose: Games and puzzle revenue rose 22 percent to $262.2 million, and preschool revenue rose 32 percent to $103.5 million.

The games business was driven by revenue from “Magic: The Gathering,” a card game that also can be played online, and from Monopoly, The Game of Life and Operation, which got a boost from “Toy Story 3.”

Infant products, learning products and Mr. And Mrs. Potato Head — also with a “Toy Story 3″ tie in — drove growth in the PlaySkool category.

Revenue was flat at $133.2 million on items for girls.

Sales of boys’ items, with tie-ins to the Transformers and G.I. Joe movies, sank 34 percent to $238.8 million. Last year, Hasbro benefited from the release of “Transformers: Revenge of the Fallen” in June and “G.I. Joe: Rise of Cobra” in August.

Hasbro said the two brands combined made about $174 million less in revenue this quarter, offset by gains of $120 million in revenue across the rest of the company’s portfolio.

“We continue to expect our revenues to be more heavily weighted to the second half of the year as our major initiatives are beginning to launch,” said CEO Brian Goldner.

Hasbro’s new children’s programming network joint venture with Discovery Communications, to be called “The Hub,” launches in October. The network will include shows based on Hasbro’s properties including Transformers, G.I. Joe, My Little Pony, Strawberry Shortcake and others.

The majority of products tied to Hub programming will launch in 2011, Hasbro said.

“Transformers 3″ will also debut in 2011, on July 1.

Hasbro, based in Pawtucket, R.I., said its cash and cash equivalents more than doubled to $872.3 million from $392 million last year.

“Our cash generation is healthy and we continue investing in our business,” said CFO Deborah Thomas. The company paid $19 million in costs related to TV programing and $25 million in royalty advances to The Hub. The next $25 million royalty advance payment is due in the fourth quarter. Hasbro also issued a dividend of 25 cents during the quarter, a 5-cent increase from the prior dividend.

Hasbro’s chief rival, Mattel, last week reported its net income more than doubled to 14 cents per share, though that missed analyst expectations by a penny.

Toy makers are facing rising costs for commodities like oil and rising wages in China. But Hasbro said that it agreed with its vendors on costs for the next year, so higher costs for labor will show up mainly in 2011.

Hasbro shares rose 9 cents to $39.59 during morning trading.