When toymaker Hasbro, Inc. (NASDAQ: HAS) reported its financial results this week, the stock soared, ending the day up 14%. It's easy to see why. Revenue grew 11% for the quarter and 13% for the year, exceeding $5 billion for the first time in the company's history. It exceeded expectations for both revenue and profits by wide margins, and the press release and conference call provided a wealth of insight into the reasons for the dramatic out-performance.
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Hasbro: Creating the World's Best Play Experiences. Image source: Hasbro.
A tale of two companies
Many Hasbro investors had feared the worst due to disappointing results reported by competitor Mattel, Inc. (NASDAQ: MAT), whose stock fell over 17%, the day of its financial release two weeks prior. Why the stark difference? Comments made by each company's management tell the tale.
In Mattel's earning press release, Chairman and CEO Christopher Sinclair had this to say:
Our results were negatively impacted by a number of industrywide challenges, including a significant U.S. toy category slowdown in the holiday period, and increased forex [foreign exchange] headwinds. And while our sales at retail remained strong, the slowdown triggered elevated retail promotional activity and decreased shipping, all of which had a significant impact on our gross margin.
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Hasbro Chairman, President and CEO Brian Goldner had a completely different take on the quarter, noting Hasbro's growth in nearly every region where it does business:
There has been a great deal of focus on the performance of the toy industry and the read through for Hasbro's performance. Importantly, the industry is growing and continued to grow throughout 2016...we do not view and did not experience the season as different from other years. (Emphasis by author)
Goldner went on to point out that some rely too heavily on publicly available US industry data, which does not represent the majority of Hasbro's business and missed important aspects of the company market, including:
- Club stores, grocery, drug stores, and value channels
- Hobby stores, the primary venue for Magic: The Gathering
- 5% of the company's revenue from entertainment and licensing
- Global sales, which represent 50% of Hasbro's revenue
New reporting categories eliminate stereotypes. Image source Hasbro.
Working to eliminate stereotypes and gender bias
Hasbro also wants investors to know that is keeping up with the times and is working to eliminate gender stereotypes by reframing the reporting categories for its toys and games:
Beginning with the first quarter, we will no longer report revenue along the Boys, Games, Girls, and Preschool categories. Instead, we will provide a revenue breakdown of Franchise Brands, Partner Brands, Hasbro Gaming, and Emerging Brands. We believe this is a more relevant and appropriate view of our business.
Hasbro has struggled with gender bias in the past. In 2012, the company was called out by a girl who wanted a less feminine-colored Easy Bake Oven for her brother,and by a six-year-old girl for having too few girls represented in its game Guess Who? More recently, Hasbro made headlines for referring to all its Jurassic World dinosaurs as "he" on its packaging. Moving away from gender based categories is a good move by the company, showing it's responding to social changes.
Long term view
Many times during the conference call, the company encouraged investors to take a long-term view, using the phrase 12 times. Here's one example:
As many of you know, when we speak about our business we focus on full-year performance. This is due to our long-term perspective toward developing our brands, the seasonal nature of the industry, and the impact of many factors on weekly, monthly, and even quarterly sales trends. These factors include the timing of launches, holidays, the number of days or weeks in a period, promotional activity, retail inventory, and changes in share.
This is an important lesson for investors. Far too many focus on the changes that occur each quarter and miss the big picture. It is refreshing to see a company that is focusing on the long-term and not so much on meeting investors' and analysts' expectations for the quarter.
Hasbro advocates a long-term view. Image source: Hasbro.
Hasbro also wanted investors to know that it is being a good steward and is taking every opportunity to return cash to shareholders:
Our strong cash position enabled us to return $400 million to shareholders through dividends and share repurchase, and the Board's 12% quarterly dividend increase announced today is further indication of our positive outlook and confidence in the performance of Hasbro.
With more than $1 billion in cash on its balance sheet, Hasbro is making a point to return cash while maintaining a prudent reserve. This is another indication of Hasbro's long term view.
The bottom line
Each of these quotes is an indication of a company that has a finger on the pulse of its business, is in touch with what is happening in its industry, and refuses to be distracted from its long-term goals.
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