The stock market overall is acting as if the earnings future is bright. The stock of toy and game maker Hasbro (HAS 91.13, -7.06, -7.2%), however, is not. Including today's decline, HAS has dropped 21% since reporting its second quarter results in July.
Relative to analysts' average expectations, the third quarter results delivered by Hasbro this morning were better than expected. Net revenues increased 7% to $1.79 billion and earnings, excluding a $0.04 per diluted share benefit from an accounting change, increased slightly to $2.05 per diluted share.
Net revenues increased for all major segments, with the U.S. and Canada, and International, both registering 7% year-over-year increases. Entertainment and Licensing net revenues rose 4%. Despite the revenue increase, only Entertainment and Licensing saw an increased operating profit.
Hurt by product mix and the Toys "R" Us bankruptcy, operating profit for U.S. and Canada declined 5% to $217.3 million. International segment operating profit decreased 1% to $132.0 million.
Hasbro's Partner Brands continued to struggle with net revenues down 2% on the back of weakness in YO-KAI WATCH and DREAMWORKS' TROLLS. That downturn, however, was offset by growth for the Franchise Brands (+7%), Hasbro Gaming (+22%), and Emerging Brands (+9%) portfolios.
With the third quarter in the rearview mirror, Hasbro and its investors have turned their attention to the fourth quarter and that's where the main source of today's weakness in the stock rests.
Hasbro said it is well positioned for the important holiday selling season, yet its fourth quarter revenue outlook has failed to live up to analysts' higher expectations.
Specifically, Hasbro expects fourth quarter revenues to increase in a range of 4% to 7% versus the same period a year ago. That translates to a range of $1.69 billion to $1.74 billion, which is about 4% below analysts' average expectation at the high end of the guidance range.
Hasbro's conservative guidance has links to the Toys "R" Us challenges and the economic outlook in certain markets where it does business, such as Brazil and the U.K.
Not surprisingly, Hasbro's warning has impacted competitor Mattel (MAT 15.18, -0.79, -5.0%), which is scheduled to report its quarter results after the close on Thursday, October 26.
Including today's losses, HAS is up 17.2% year-to-date while MAT is down 44.9%.