Hasbro Management Discusses Q2 2012 Results - Earnings Call Transcript

Hasbro (HAS)

Q2 2012 Earnings Call

July 23, 2012 8:30 am ET


Debbie Hancock

Brian D. Goldner - Chief Executive Officer, President, Director and Member of Executive Committee

Deborah M. Thomas - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

David D. R. Hargreaves - Chief Operating Officer


Andrew E. Crum - Stifel, Nicolaus & Co., Inc., Research Division

Felicia R. Hendrix - Barclays Capital, Research Division

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

Robert W. Carroll - UBS Investment Bank, Research Division

Jaime M. Katz - Morningstar Inc., Research Division

Sean P. McGowan - Needham & Company, LLC, Research Division

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Eric O. Handler - MKM Partners LLC, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Gregory R. Badishkanian - Citigroup Inc, Research Division

Gerrick L. Johnson - BMO Capital Markets U.S.

Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division

James Andrew Chartier - Monness, Crespi, Hardt & Co., Inc., Research Division



Good morning, and welcome to the Hasbro Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time.

At this time, I'd like to turn the call over to Ms. Debbie Hancock, Vice President of Investor Relations. Please go ahead.

Debbie Hancock

Thank you, and good morning, everyone. Our second quarter earnings release was issued earlier this morning and is available on our website. Additionally, also available on our website are presentation slides containing information covered in today's earnings release and call. The press release and presentation include information regarding non-GAAP financial measures included in today's call. Please note that during today's call, whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.

This morning, Brian Goldner, Hasbro's President and Chief Executive Officer; and Deb Thomas, Hasbro's CFO, will review our second quarter financial results and discuss important factors impacting our performance. Following their statements, David Hargreaves, Hasbro's Chief Operating Officer, will join Brian and Deb to field your questions.

Before we begin, please note that during this call and the question-and-answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives and similar matters. These forward-looking statements may include comments concerning our product and entertainment plans; anticipated product performance; business opportunities, plans and strategies; costs, financial goals and expectations for our future financial performance, including expectations for revenues and earnings per share in 2012.

There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. Some of those factors are set forth in our annual report on Form 10-K, our most recent 10-Q, in today's press release and in our other public disclosures. You should review such factors together with any forward-looking statements made on today's call. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.

Now I would like to introduce Brian Goldner. Brian?

Brian D. Goldner

Thank you, Debbie. Good morning, everyone, and thank you for joining us today. 2012 continues to develop in line with our expectations, as we shift more of our shipments to later in the year while improving profitability in the near term. While shipments are expected later in the year, through May, we have gained share in the United States. Given strong growth in our emerging markets, we're also confident that we're gaining share in these geographies as well.

Innovation in Hasbro core brands and new initiatives, strong entertainment in both films and television and global expansion is driving our business this year and beyond. We remain steadfast in the execution of our branded play strategy for the long term and believe in the value it is creating for our shareholders.

As we've stated, our 2012 plans calls for shifting 2% to 4% of our full year revenues into the second half of the year. We're on track with this plan, and we continue to expect to grow revenues and earnings per share, absent the impact of foreign exchange, for the full year 2012. We also expect that the fourth quarter will be greater than the third quarter in both revenues and earnings per share, similar to the historical trends in our International segment and Entertainment and Licensing segment.

In the first and second quarters, in partnership with our retailers, we have restaged our retail presence, lowered overall inventory levels and focused on aligning our shipments with the strongest periods of consumer demand. As a result, it is not surprising to see our U.S. and Canada net revenues down through the first 6 months. However, we're very encouraged about the quality of our execution and the profitability improvements we are delivering. We remain committed and on track to returning to historical levels of operating profit in the U.S. and Canada segment.

We have great innovative products launching over the next 2 quarters for all consumer groups and geographies. Entertainment is also driving incremental brand exposure and demand from both television and feature films. And our teams and retailers are supporting these fast-breaking initiatives. These include several new games, as well as our alliance with Zynga, through which we'll be launching Words With Friends, FarmVille and CityVille games this year.

Across categories, we have new lines based on Hasbro core brands and a new 1D branded product line based on the incredibly popular band One Direction from the U.K., which is taking the world by storm. Internationally, our business grew 5% absent foreign exchange, although reported net revenues were down 4% as we faced a more challenging exchange rate environment.

Our International revenues continue to benefit from our expansion into emerging markets, innovation in Hasbro brands, as well as global entertainment in both films and television programming. Year-to-date, all major geographic markets are up, excluding currency translation. In the second quarter, Latin America posted strong growth, up 15% and up nearly double that, absent foreign exchange. Excluding foreign exchange, Asia Pacific was up slightly, and Europe was down approximately 1%, given the challenging comparisons with Transformers and Beyblade last year. Through new markets and share expansion backed by innovative products and engaging marketing programs, we're in a position to grow off last year's strong performance despite facing a persistently challenging global economic environment.

Our performance overall reflected the shipment timing and retail inventory reductions in the U.S. and Canada, as well as difficult comparisons versus Transformers and Beyblade last year. As a result, revenues in the Boys category declined 16%. Sales of Marvel properties, driven by tremendous performance at the box office, were very strong. Marvel's The Avengers is ahead of expectations, and The Amazing Spider-Man is just getting started. The strength in Marvel was offset by declines in Transformers and Beyblade within the Boys category.

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