Hasbro Inc on Monday posted a sharper-than-expected quarterly sales decline from a year ago when it benefited from merchandising tie-ins to Hollywood blockbusters like G.I. Joe.
Hasbro, which owns brands from Monopoly to Playskool, beat analysts' earnings expectations for the second quarter by cutting costs, including advertising.
With the summer movie blockbuster season nearing an end, Hasbro, larger rival Mattel Inc and their investors will focus on the holiday season. Hasbro said it expects better sales from new projects in the second half of the year.
As retailers have tightened inventories in recent years, they have been buying toys from manufacturers later, Sterne, Agee and Leach analyst Margaret Whitfield said.
It sounds like in both cases their retail sales are doing relatively well, but retailers are being tightfisted in general, Whitfield said.
They're not exactly building inventory at this early stage, she added. We think once again Hasbro and Mattel toys will be at the top of the list, apart from Lego, for purchases in the holidays.
On Friday, Mattel reported smaller-than-expected profit because of the weak euro.
Hasbro, the No. 2 U.S. toymaker, said sales in its boys' toys unit fell from last year's strong sales tied to the Transformers: Revenge of the Fallen and G.I. Joe: The Rise of Cobra movies. Mattel, by contrast, saw sales helped during the quarter by toys related to Toy Story 3.
Hasbro said revenue and earnings per share should rise this year and that it would benefit from new projects, including a new children's television network called The Hub, a joint venture with Discovery Communications Inc .
The company is creating Hasbro Studios to produce programing for The Hub.
Hasbro's second-quarter net profit rose to $43.6 million, or 29 cents a share, from $39.3 million, or 26 cents a share, a year earlier. Analysts on average expected earnings of 24 cents a share, according to Thomson Reuters I/B/E/S.
Sales fell 7 percent to $737.8 million, missing analysts' average forecast of $748.3 million. The company curtailed advertising and other costs to offset the weakness.
Last month, Hasbro denied a Wall Street Journal report that it was for sale. The company held talks with Providence Equity, a buyout and investment firm that, like Hasbro, is based in Rhode Island, sources said at the time.
Some analysts still consider it an attractive buyout candidate for an entertainment company. Hasbro holds licenses to make merchandise tied to upcoming movies such as The First Avenger: Captain America and Spider-Man 4.
Last December, Hasbro signed a 10-year deal to make and sell toys and games based on characters in the American children's television series Sesame Street.
Hasbro's stock, which has risen almost 23 percent in the past 6 months, was down 1.25 percent Monday morning.
(Reporting by Dhanya Skariachan and Emily Stephenson; Editing by Lisa Von Ahn and Robert MacMillan)