Wednesday, February 13, 2008


Hasbro Profit Climbs on Transformers; New Chief Named

Hasbro Inc., the world's second- largest toymaker, posted fourth-quarter profit that exceeded analysts' estimates and said Chief Executive Officer Alfred Verrecchia will step down.

Verrecchia, a 43-year Hasbro veteran, will be replaced by operating chief Brian Goldner in May, the Pawtucket, Rhode Island-based company said today. The shares rose 2.1 percent.

International sales outpaced those in North America. Customers bought more Littlest Pet Shop and Baby Alive dolls as well as Transformers, Spider-Man and other movie-related action figures in the quarter, which accounted for two-fifths of profit in 2007. Hasbro also avoided the publicity and costs of recalls of Chinese-made toys that hurt larger Mattel Inc.

``Even in a movie year with strong boys' toys, their growth was broad-based,'' said Chris White, an analyst at Wedbush Morgan Securities in Los Angeles. ``Hasbro products are selling better than Mattel in a variety of categories. It's hard to know how much is recalls versus better products.'' White recommends holding Hasbro shares and doesn't own any.

Net income climbed 24 percent to $133.7 million, or 84 cents a share, in the quarter, from $108.3 million, or 62 cents, a year earlier, the maker of Nerf sports equipment and Monopoly said. Revenue increased 16 percent to $1.3 billion.

Future Strategy

``We have really grown our core brands, we have reinvented them and re-imagined them,'' Goldner, 44, said today in a telephone interview. ``We'll continue to drive that strategy into the future.''

Hasbro climbed 54 cents to $26.41 at 4:01 p.m. in composite trading on the New York Stock Exchange. The stock increased 3.2 percent this year, compared with an 8.6 percent gain by Mattel.

Verrecchia, 64, started working at Hasbro in 1965 as a staff accountant. He became CEO in May 2003, and will take over as chairman in May. Hasbro's stock has climbed 63 percent from May 12, 2003, the day before he became CEO. Hasbro's sales climbed 22 percent between 2003 and 2007. Net income more than doubled during that period.

`Driving Force'

Goldner joined Hasbro in 2000 after working at toymaker Bandai America Inc. as operating chief. He became COO in 2006. Goldner is talented at tailoring Hasbro's products to fit consumer research and was a ``driving force'' behind the Transformers film, said Gerrick Johnson, an analyst at BMO Capital Markets. He said the shift wasn't surprising.

``Goldner is one of the best young toy minds in the business,'' said Johnson. ``Hasbro has had a massive amount of growth over the past few years and he's made sure the trains run on schedule.'' Johnson, based in New York, recommends holding Hasbro shares and doesn't own any.

Chairman Alan Hassenfeld, 59, will remain a board member and lead the company's executive committee. He preceded Verrecchia as CEO and is the grandson of Hasbro's founder.

Ten analysts surveyed by Bloomberg estimated Hasbro would post average profit of 81 cents a share. Eight predicted sales of $1.22 billion. Hasbro also makes Star Wars action figures, My Little Pony dolls and Play-Doh clay.

Overseas Sales

Overseas sales climbed 29 percent to $489.2 million in the quarter, helped by the dollar's decline against other currencies. North American revenue rose 7.6 percent to $766.8 million. A 15 percent drop in income tax payments from a year earlier also boosted profit.

Hasbro is seeking to use toys tied to the ``Iron Man'' and ``The Incredible Hulk'' films this year to lift revenue and counter an increase in commodity, Chinese labor and product- testing costs of as much as 15 percent. The company also has new products tied to a Transformers TV show that debuted last month.

``They're really hitting stride on a number of fronts,'' Sean McGowan, an analyst at Needham & Co. in New York, said in a Bloomberg Radio interview. ``Certainly it's Al's pleasure to go out on an up note.''

Hasbro bought Cranium Inc. for $77.5 million last month to add to its Scrabble, Clue and Operation games. Toys based on 2007's ``Spider-Man 3,'' as well as the Iron Man and Hulk movies, are part of a five-year licensing agreement with Marvel Entertainment Inc.

The toymaker signed a licensing deal last year with Electronic Arts Inc., the world's largest video-game publisher, to create digital products based on Hasbro brands.

Yahtzee Adventures

Electronic Arts said today that the first games scheduled for release include Littlest Pet Shop and Nerf ``N-Strike'' for Nintendo Co. consoles and Scrabble, Monopoly Here & Now and Yahtzee Adventures for cell phones.

Full-year net income climbed 45 percent to $333 million, the biggest gain since at least 1999. Hasbro repurchased 20.8 million shares last year for $587 million. Sales in 2007 jumped 22 percent to $3.84 billion.

Mattel, the world's largest toymaker, said Jan. 31 that fourth-quarter profit rose 15 percent as higher international sales and a tax benefit countered $42 million in costs for toy recalls. Mattel recalled more than 21 million Chinese-made toys last year for lead paint or magnets that easily detach.

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