Toy and game maker Hasbro (HAS 106.80, -9.15, -7.9%) reported its second quarter earnings results this morning and they were good. The problem for its stock, which is down almost 8% in the wake of the report, is that the results weren't good enough to satisfy investors' high expectations, which have driven shares of HAS up 49% this year.
Briefly, Hasbro's second quarter revenue increased 10.6% to $972.5 million, its operating margin expanded 60 basis points to 10.3%, helped by lower product development and advertising costs as a percentage of sales, and its diluted earnings per share jumped 29% to $0.53, which was comfortably ahead of analysts' average expectation.
A few sticking points for investors apparently were the admission that Hasbro is seeing some softness in economic conditions in Brazil and the U.K. and the understanding that its Franchise Brands segment is carrying the bulk of its sales-growth load.
Hasbro generates close to 45% of its revenue outside the U.S. and Canada, with Europe comprising 55% of international revenues and Latin America 23%. The Asia-Pacific region makes up the remaining portion of international revenues. Accordingly, any softness in economic conditions in Brazil and the U.K. could act as a headwind on sales prospects there.
It was clear in the report, however, that sales for the company's core Franchise Brands segment were just fine in the second quarter. They increased 21% to $545.7 million, led by growth in TRASNFORMERS, MAGIC: THE GATHERING, NERF and MONOPOLY.
That robust growth was not duplicated throughout the business. Partner Brand revenues were up just 1% to $230.0 million, Hasbro Gaming revenue increased 6% to $133.9 million, and Emerging Brands revenue declined 14% to $62.9 million.
Hasbro didn't provide any earnings guidance in its press release, yet management contends it "...entered the second half of the year with strong consumer momentum, a robust and diverse entertainment slate, and compelling new brand initiatives."
Be that as it may, investors haven't been compelled to buy the stock following the earnings report since the good news had been priced in already while the less good news had not.