An article by Chris Palmeri of Business Week takes a look at the current-quarter profits of both Hasbro and Mattel and the impact that Hasbro’s summer movies have had on the company’s bottom line.
Check out the original article here. (Full text after the jump)
Hasbro’s G.I. Joe Is On A Risky Mission, While Mattel’s Barbie Conserves Her Cash
Posted by: Chris Palmeri on July 20
Toy giant Hasbro reported its second quarter earnings on July 20 and the company beat analysts’ estimates. Earnings climbed 5% to $39 million. Archrival Mattel did well too, reporting on July 17 that its earnings leapt 90% to $21 million in the same period. But that’s where the comparisons end. Hasbro’s sales climbed 1% to $790 million for the quarter. Mattel’s revenues plunged 19% to $898 million.
The divergent sales trends reflect two very different approaches to management in this Great Recession. Hasbro has continued to invest in risky entertainment ventures, as part of a strategy to extend its famous toy brands into TV, the Web and the big screen. Mattel, by contrast, is playing it much more conservatively, cutting costs and husbanding its cash for better days.
Hasbro has got two big movies out this summer that it helped produce. Transformers 2: Revenge of the Fallen has already taken in more than $700 million in ticket sales worldwide and has become the top-grossing film of all time in China. Two years ago Hasbro sold nearly half a billion worth of toys tied to the first Transformers movie. Analysts believe it’s on track to top that this year.
Next up is a new G.I. Joe movie, to be released on August 7. It is also expected to do well, though not in the Transformers league. That’s a picture to the right of “Snake Eyes,” a character from the new movie. G.I. Joes don’t look they did when I was a kid.
Hasbro has continued to invest in this tough market. In April it announced it was spending $300 million to buy half of a new cable television network from Discovery Communications. Continued investment in that joint venture alone cost the company $9 million this quarter. Hasbro also spent $90 million renewing license agreements with Marvel Entertainment and Lucas Films. Overall its cash balance fell by one-third to $390 million in the past year.
“We feel very good about our long-term prospects for growth,” Hasbro CEO Brian Goldner told investors in a July 20 conference call. “Retailers around the world are supporting us. They want to place bets with great brands.”
Mattel, by contrast, is on track to cut a total of $200 million in costs out of its system in 2009 and 2010. Those efforts are behind its recent profit boost. Still, some of its core brands such as Hot Wheels and Fisher-Price are shrinking. Barbie sales worldwide were down 15% in the second quarter. In part that’s because the company is phasing out new Barbie DVD releases that were big sellers in past holiday seasons. It wants to be less reliant on such hit-or-miss entertainment properties.
Mattel’s CEO Robert Eckert blames the sales losses on retailers cutting back inventory, negative foreign currency adjustments and the company’s lack of big movie related toy licenses compared to last year. Instead he’s focused on right-sizing the company and on conserving cash. He’s increased the company’s cash holding in the quarter to $423 million, up from $384 million in same period last year.
Some analysts think Eckert is playing his hand well. “Everybody knows the economy stinks,” says Lutz Miller, who follows the toy business at Kloster Trading. “They’re saying if we downplay it and cut costs, and if things go better than we said then investors will be over the moon.” Others are concerned Eckert may not be investing as much in the business as he should. Gerrick Johnson of BMO Capital Markets says, even as he increased his estimate of Mattel’s earnings to $1.25 per share for the year from $1.06, that he is “growing concerned with the company’s ability to hit future earnings targets in the face of steep sales declines.”
“Am I overly conservative?” Eckert asked in the company’s July 17 conference call. “I don’t know. I think the environment in which we are in, looking at retail inventories, they are certainly very conservative and as I say, they are planning cautiously about the holiday season. I’ve said all year, this is going to be a tough year.”