Hasbro Stock Falls Due to Earnings Miss, Mattel Follows

Today, Hasbro (HAS) released its third-quarter earnings. While the company’s revenues rose marginally during the quarter to $1.58 billion, the results disappointed Wall Street. Analysts expected a top line of $1.7 billion. At $1.84, the EPS fell short of analysts’ expectation of $2.21. Hasbro stock fell 16% at 10:29 AM ET.

Hasbro’s sales

The company’s US and Canada sales fell 2% during the quarter to $898 million, while international sales remained flat at $561 million. The Magic and Bumblebee movie releases helped the company record a 20% increase in revenues from the entertainment, licensing, and digital segment.

The US and Canada segment’s operating profit fell 13% due to higher royalties, shipping, and warehousing expenses. The International segment’s operating profit increased marginally. Meanwhile, the Entertainment, Licensing, and Digital segment’s operating profit fell by $12 million or 34% due to higher program production costs and advertising expenses.

Trade war and Hasbro

Hasbro’s third-quarter earnings focused on the US-China trade war. The company stated that fear and uncertainty about the tariffs forced some customers to cancel direct import orders from China. While many of the orders were routed to domestic warehouses during the quarter, the company couldn’t fulfill all of the orders in time. Some of the company’s products have been impacted by the tariffs. However, most of the products will come under the tariffs on December 15—just days before Christmas.

Hasbro is already working to reduce its dependence on China. The company aims to reduce its sourcing from China to 50% by the end of next year. Hasbro will move its production to countries like Vietnam and India. Many US tech companies are looking at Vietnam as an option instead of China. Google is moving the Pixel phone’s production to Vietnam, while Amazon is tapping the country to produce Echo devices. Meanwhile, Apple has started producing iPhones in India.

Entertainment One acquisition

Hasbro’s CEO, Brian Goldner, noted in the conference call that Entertainment One (ENTMF) shareholders approved Hasbro’s acquisition bid last week. The company expects to complete the acquisition in the current quarter. Hasbro expects to finance the transaction through fresh debt and $1 billion–$1.25 billion in cash.

Mattel’s upcoming earnings

Mattel (MAT) is scheduled to report its earnings on Thursday. Analysts expect the company to generate $1.43 billion in revenues in the third quarter—marginally below its revenues in the same quarter last year. Mattel’s EPS will likely fall to 16 cents—a 12.5% drop. The stock was down 7.5% at 11:05 AM ET due to Hasbro’s miss and bearish expectations.