Toy-riffic Year for Hasbro as Market Falls

Toy makers are facing increasing competition from electronics such as Apple Inc.'s iPod, as well as rising costs for raw materials, such as resin, which is used in many toys. Pawtucket, R.I.-based Hasbro has responded by refurbishing older brands such as Nerf, launching new versions of board games including Monopoly and Clue, and striking deals with companies such as Universal Pictures and Electronic Arts Inc.

The strategy seems to be working for Hasbro, which has been led by chief executive Brian Goldner since May. Products related to Hasbro's movie properties have flown off store shelves, including toys based on last year's "Transformers" movie and toys tied in to movies based on the Marvel characters "Iron Man" and "The Incredible Hulk" as well as "Star Wars," and "Indiana Jones and the Kingdom of the Crystal Skull." The world's second-biggest toy company's profit beat expectations in the fiscal first and second quarters as sales grew 13 percent in both periods.

The strong performance has given Hasbro's stock a boost in a tough market. Hasbro is one of fewer than 30 companies in the Standard & Poor's 500 Index that have risen so far in 2008. The S&P 500 has fallen about 35 percent this year and the Dow Jones Industrial Average is down about 32 percent as a slowing economy and tight credit markets unnerved investors. Hasbro shares have bucked that trend rising about 18 percent in 2008.

Toys are often seen as "recession proof" _ as parents are likely to cut back on themselves before their children. Even still, Hasbro has fared better than other companies this year. Hampered by high costs and weak sales of key brands such as Barbie, chief rival El Segundo, Calif.-based Mattel Inc. reported a loss in the fiscal first quarter and a decline in profit in its second quarter. Its shares are down about 24 percent this year.

Part of Hasbro's success lies in being able to "translate game and toy brands into other opportunities," says Wayne Charness, senior vice president of corporate communications. That doesn't just include movies, but video games and TV shows as well. By the end of the year Hasbro will have released 30 video games with video-game maker Electronic Arts, across all gaming platforms. A TV game based on its Trivial Pursuit board game is "Trivial Pursuit: America Plays" began airing last month.

"It would be unfair not to acknowledge some work started several years ago to refreshen old brands: Nerf, Play-Doh, board games," says Needham & Co. analyst Sean McGowan. "A number of things worked quite well. The success of 'Iron Man' and 'Hulk' is a positive surprise, 'Transformers' staying strong is a positive surprise."

Hasbro is quick to point out that only results from the first six months of the fiscal year have been reported _ the company reports fiscal third-quarter earnings Monday. Still to come is the crucial holiday season, which is expected to be weak as consumers cut back. On Wednesday the U.S. Commerce Department reported retail sales dropped 1.2 percent in September, a sign that turmoil in the credit markets has begun to slow consumer spending.

McGowan says that while toys are lower on the list of things consumers cut back on, "we're also in a kind of economic climate no one has ever seen."

So far, however, investors have proven to be fans. Results reflect "the improved way they thought about the intellectual property they posses," said Tom Russo of investment firm Gardner Russo & Gardner, in Lancaster, Pa. The firm currently holds $40 million to $60 million worth of the company's stock. He's also impressed with the company's efforts to improve its balance sheet by paying down debt and to breathe new life into decade-old properties such as Transformers.

Up next, Hasbro has a new Transformers movie and a movie based on G.I. Joe characters due out in 2009. Whether the success of 2008 will continue into 2009 is uncertain, but so far, Hasbro has had a successful year "through a combination of good fortune and good planning," McGowan said. "They're doing uncommonly well, above trend," he said.

Source: CNN Money

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