Hasbro (NYSE: HAS) management recently spoke to analysts at its Investor Day conference. Here's the transcript. We all know the deal about these conferences: companies want to put their best foot forward and convince Wall Street that, if things are going good they are about to get even better, or, if things are going bad they won't be as bad as people thought and they will be improving either soon or on a long-term basis. You can bet that it was the latter tone taken by Team Hasbro at the event. In fact, CEO Brian Goldner said something which I thought was quite amazing: did you know that there actually will be a Christmas this year?
Frankly, I had my doubts. Of course, even though there will be a Christmas, and even though Santa will be delivering a lot of toys to kids this holiday season, it's not going to be a pleasant one for toy manufacturers. We're in a bad recession, folks, which is about to wreak psychological havoc on even the strongest consumer mind. Hasbro wants investors to know that parents will buy the stuff on their children's lists. Hasbro is further betting that the company's products will be on a lot of those lists.
The brand equity inherent in its portfolio was mentioned as a particular strength, one that will help keep margins strong and defend the company against competition not only from the likes of Mattel (NYSE: MAT) and JAKKS Pacific (NASDAQ: JAKK) but also from companies that put out more generic playthings. Management also mentioned that Hasbro is in a position of financial strength because of its cash flow, and that it remains confident that revenue expansion can go beyond increases in costs and expenses.
Issues of a stronger dollar came up in the question-and-answer period, and there was talk about how the company hedges against the effect of currency transactions. Indeed, if the dollar does get stronger in the near term, it can have an impact on the bottom line. On a more positive note, Hasbro seems pretty excited about its licensing relationship with Marvel (NYSE: MVL) in the wake of the success of the Iron Man movie. Management also is confident about its investments in digital gaming and its ability to be ahead of the curve in terms of age compression (i.e., kids growing out of traditional toys at earlier points in their lives).
All well and good. The comments by the CEO and the other members of Team Hasbro, while typical of the corporate cheerleading that usually goes on at these kinds of events, do ring true to me. Yes, I'm a long-term bull on Hasbro, and I do think the company's cash flow will grow over time and that there will be dividend increases along the way.
However, short-term, I don't think any amount of cheerleading can change the fact that the retailers are doing horribly. Comps are down, traffic is abysmal, credit is tight, and there's going to be a whole lot of discounting going on to bring the consumer in. None of this is positive for Hasbro the company or Hasbro the stock. So, while the shares closed on Monday a few bucks above the 52-week low, I can almost guarantee you that they will be below that level in not too long a time.
It's getting ugly out there, and no amount of talk about brand equity can change the short-term forecast. If you think Hasbro is cheap now, wait a little longer, because I think it's about to get cheaper.
Disclosure: I own Marvel; positions can change at any time.
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