Analysis

Why Hasbro Stock Popped This Week

Hasbro’s cost-cutting plans are paying off.

Shares of Hasbro (HAS -0.09%), the toy and game maker known for products like Transformers, Magic: The Gathering, and Monopoly, were on the move this week as the stock beat quarterly estimates in spite of a decline in revenue.

According to data from S&P Global Market Intelligence, the stock was up 17.6% for the week as of Thursday’s close.

Image source: Getty Images.

Is this the start of a turnaround?

Revenue in the quarter fell 24%, primarily due to the sale of the Entertainment One video entertainment business. Excluding its effect, revenue was down 9% due to a 21% decline in its consumer products business. The challenges in the toy business reflect broader industry challenges and Hasbro’s own decision to exit certain business lines and reduce closeout sales.

The company finished the quarter with revenue of $757.3 million, though that still beat estimates at $738.6 million.

While the decline in revenue might have been disappointing, investors focused their attention on the company’s cost cuts, which led to improvements in the bottom line.

Adjusted operating profit doubled to $148.6 million. Its adjusted operating margin improved from 4.9% to 19.6% as it slashed inventory by 53%, improved supply chain productivity, and reduced operating costs.

On the bottom line, adjusted earnings per share jumped from $0.01 to $0.61, which topped the analyst consensus at $0.27.

CEO Chris Cocks noted the strong performance of the company’s licensing portfolio as it attempts to unlock the value of its intellectual property, a tried-and-true strategy in the children’s entertainment industry.

Can Hasbro keep climbing?

Looking ahead, the company continues to expect revenue to decline. It forecasts a 7% to 12% decline in consumer products, a 3% to 5% decline in the Wizards of the Coast segment, and revenue in the Pro-forma entertainment segment down $15 million.

On the bottom line, it forecast earnings before interest, taxes, depreciation, and amortization (EBITDA) of $925 million to $1 billion, meaning the stock trades at less than 10 times EBITDA. Its 4.3% dividend yield is enticing as well.

While the revenue declines are disappointing, Hasbro seems to be on a path toward further gains.

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