Hasbro (NYSE: HAS), a toy maker that competes with Mattel (NYSE: MAT) and JAKKS Pacific (NASDAQ: JAKK), reported a steep drop in quarterly earnings on Monday. Net income was $0.62 per share in the fourth quarter, compared to $0.84 per share in the year-ago period. Net sales pulled back by 5%, given the effects of currency translation. According to Stocks in the News, analysts were hoping for something along the lines of $0.74 per share.Even though earnings took a huge dive, Hasbro's stock is up as I write this by over 8%. What gives? Could it be the fact that earnings per share increased a few pennies to $2 for the full fiscal year? I doubt that. Hasbro is facing the same thing every other corporate entity is facing: a bad currency environment in the context of a global slowdown. Wall Street may be happy about the guidance. Hasbro says it will be controlling costs as best it can and will engage some price increases.
From a fundamental viewpoint, you'll have to put me down as skeptical on the prospects of Hasbro for the coming year, at least at this time. Considering currency risk, all the layoffs going on, etc., I think the toy maker will have a very difficult time growing profits in the next several months. This past holiday quarter is pretty indicative, it seems. And, as many companies decided to do, Hasbro chose not to repurchase shares in Q4. Not a comforting sign.
The market, however, is saying that I am wrong to be bearish. Sometimes you don't want to fight the tape, especially if you're trading. However, I would wait and examine the price action of the stock over a few days before starting a position in Hasbro, given all the macroeconomic stuff going on. I would especially not buy the rally in the shares today.
Disclosure: I don't own any company mentioned; positions can change without notice.
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