Spider-Man action figure

By: Jason Tripp - Staff Writer
Posted 4/24/07

Hasbro Inc. posted a profit that trounced expectations, on strong sales of Spider-Man toys and its Littlest Pet Shop and Playskool brands, sending the company's shares up 10 percent.

First-quarter net income at the No. 2 U.S. toy maker was $32.9 million, or 19 cents a share, compared with a year-earlier loss of $4.9 million, or 3 cents a share.

Revenue rose 34 percent in the quarter, to $625.3 million from $468.2 million, in a period that tends to be less critical to toy makers than the fourth quarter.

Analysts, on average, were expecting Hasbro to break even for the quarter, on $508.9 million in revenue.

"We believe this was the highest level of first-quarter net income in the company's history, including the Pokemon-Star Wars era of 1999-00," Wedbush Morgan Securities analyst Sean McGowan wrote in a research note.

More than half of that increase was driven by sales of Marvel toys, primarily Spider-Man, said McGowan, who has a "buy" rating on Hasbro's shares.

The results come a week after Mattel Inc. (NYSE:MAT - news), the largest U.S. toy maker, also posted a surprise first-quarter profit.

"Our core brands and new product initiatives performed very well with revenue growth for the quarter pretty balanced between our Marvel business and all our other Hasbro business," Chief Executive Alfred Verrecchia said in a statement.

Hasbro has been rolling out more toys this year because of its licensing deal with Marvel Entertainment Inc. (NYSE:MVL - news), which is releasing "Spider-Man 3" on May 4 and "Fantastic Four: Rise of Silver Surfer" on June 15.

Hasbro's Transformers brand is also tied to a film slated for a July 4 release. Shipping for Transformers toys, scheduled to hit shelves on June 2, began this month, the company said.

The company has said it expects its movie-related toys to be just as profitable as its other, more established brands like Nerf, Monopoly and Play-Doh.

Sales of the latest Spider-Man toys, which came to market on March 24, "significantly" outsold toys related to Spider-Man 2, Verrecchia said on a conference call.

"Our channel checks suggest that Spider-Man 3 products have been well received in advance of the movie debut," Sterne, Agee and Leach analyst Margaret Whitfield wrote in a research note.

"Additionally, Mattel attributed competition, including Littlest Pet Shop as a factor in the downturn in Barbie sales," wrote Whitfield, who has a "hold" rating on Hasbro's shares.

Last year, Hasbro inked a five-year, $205 million licensing deal with Marvel, giving it the right to produce toys and games based on the media company's stable of more than 5,000 characters, including X-Men and Captain America.

Revenue from the company's North American segment rose to $421.1 million from $310.3 million a year earlier.

Hasbro's international unit posted $187.7 million in revenue, up from $145.5 million a year ago.

MONOPOLY, GIRLS TOYS SURGE

Sales of girls' toys rose 62 percent, boosted by FurReal Friends, while sales of Nerf climbed 72 percent, Hasbro said.

Sales in its games division rose 8 percent as well, driven by a 22 percent climb in sales of Monopoly.

"Retailers had nothing on the shelf after the holidays and Hasbro had to get it back into the distribution channel," Arcadia Investment Corp. analyst John Taylor said regarding Monopoly's surge.

"It's a core product, so retailers want to have this somewhere in their supply chain so they can feed sales," said Taylor, who does not own Hasbro shares.

My Little Pony, another core Hasbro brand, was also a standout performer, Taylor added.

Hasbro also raised its quarterly dividend to 16 cents a share from 12 cents, and said it repurchased 2.5 million shares of common stock at a cost of $74 million during the quarter.

Hasbro shares, which have soared 88 percent from a 52-week low of $17.38 last July, trade at about 18.9 times 2007 earnings, a premium to rivals Mattel and JAKKS Pacific Inc. (Nasdaq:JAKK - news), which trade at 17.4 times and 10.7 times, respectively.

The stock was trading up about 9 percent at $32.94 in afternoon trading on the New York Stock Exchange.