Hasbro's Profit Spins Higher

Second-quarter profit at toymaker Hasbro ( HAS) rose by nearly two-thirds, despite a slump in revenue due largely to the company's underperforming Beyblade spinning top.

Hasbro earned $18.8 million, or 6 cents a share, in the quarter ended June 27, compared with $11.4 million, or 6 cents a share in the year earlier. Analysts had been expecting 8 cents a share.

Revenue slumped to $516.4 million from $581.5 million a year ago. Sales in its U.S. toys business were $167.2 million vs. $208.4 million a year ago, reflecting an overall softness in its boy's business. Beyblade revenue fell $34 million from a year earlier.

Sales at Hasbro's games segment were $161.6 million for the quarter, up from $148.6 million a year ago.

Despite further anticipated declines in Beyblade, the company said it is on track to increase sales and earnings in the year -- despite the uncertain retail market -- because it has reduced overhead and is focused on its core brands.

Looking ahead, analysts are expecting the Pawtucket, R.I.-based company to earn $1.35 a share in the full year, which would be up from $1.10 a share in 2003.

Shares of Hasbro were lately down 27 cents, or 1.5%, at $17.73, just above their 52-week intraday low of $17.15 reached on May 17.

Hasbro's earnings miss follows a report released Wednesday by Standard & Poor's credit rating service that said the business risk is high for toymakers. It cited the low success rate of new products, short product life cycles, a sales cycle that is highly seasonal and varying demand levels based on children's changing tastes.

"Our assessment of the impact of continued competition from video games, mature industry growth prospects, and consolidation of the retail customer base will remain key issues in ratings on toy makers over the intermediate term," said Hal Diamond, credit analyst at S&P. The analyst is also concerned about Hasbro's and Mattel's ( MAT) increasing dependence on a small number of mass merchandisers.

S&P currently has a BBB rating on Hasbro with a stable outlook. It also rates Mattel a BBB with a stable outlook. The companies are the two largest traditional toymakers.

In addition, discounters such as Wal-Mart ( WMT) have contributed to the competitiveness in the toy market of late, because it can price its toys lower than other outfits.

Waning sales at Toys R Us ( TOY), for example, have been one byproduct of Wal-Mart's aggressive toy pricing, which the toy company mostly saw during the 2003 holiday season. Toys R Us said on a March conference call that the 2004 holiday season will be critical time for it to maintain its competitive edge.

Toys R Us is in the process of a strategic review, designed in part to address its waning core U.S. toy business. The company has not said when the review will be completed but said in March that it is taking longer-than-anticipated to finish.

Meanwhile, Toys R Us is on "credit watch" at S&P. In its most recent quarter, the company said its U.S. toy division saw same-store sales fall 5.6% from a year ago, including a 27% decline in video-game sales. It had reported a quarterly loss of 13 cents a share.

Shares of Toys R Us were up a penny at $16.71 in morning trading.

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