HAS

Hasbro, Inc. (HAS)

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Hasbro (HAS)

Q4 2011 Earnings Call

February 06, 2012 8:30 am ET

Executives

Debbie Hancock -

Brian D. Goldner - Chief Executive Officer, President, Director and Member of Executive Committee

Deborah Thomas - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

David D. R. Hargreaves - Chief Operating Officer

Analysts

Andrew E. Crum - Stifel, Nicolaus & Co., Inc., Research Division

Sean P. McGowan - Needham & Company, LLC, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Felicia R. Hendrix - Barclays Capital, Research Division

Robert W. Carroll - UBS Investment Bank, Research Division

Gregory R. Badishkanian - Citigroup Inc, Research Division

Eric O. Handler - MKM Partners LLC, Research Division

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Gerrick L. Johnson - BMO Capital Markets U.S.

James Hardiman - Longbow Research LLC

Presentation

Operator

Good morning, and welcome to the Hasbro Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the call over to Ms. Debbie Hancock, Vice President of Investor Relations. Please go ahead.

Debbie Hancock

Thank you, and good morning, everyone. Joining me today are Brian Goldner, President and Chief Executive Officer; David Hargreaves, Chief Operating Officer; and Deb Thomas, Chief Financial Officer.

Our fourth quarter and full year 2011 earnings release was issued earlier this morning and is available on our website. The press release includes information regarding non-GAAP financial measures included in today's call. Additionally, whenever we discuss earnings per share, or EPS, we are referring to earnings per diluted share.

This morning, Brian will discuss key factors impacting our results, and Deb will review the financials. We will then open the call to your questions.

Before we begin, let me note that during this call and the question-and-answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives and similar matters. These forward-looking statements may include comments concerning our product and entertainment plans, anticipated product performance, business opportunities and strategies, costs, financial goals and expectations for our future financial performance and achieving our objective.

There are many factors that could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. Some of those factors are set forth in our annual report on Form 10-K, in today's press release and in our other public disclosures. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.

Now I would like to introduce Brian Goldner. Brian?

Brian D. Goldner

Thank you, Debbie. Good morning, everyone, and thank you for joining us today. In 2011, we continued to develop and execute our branded play strategy. We invested in growing our capabilities to deliver innovation globally across our brands and our business. We invested in creating new teams to deploy our brands around the world adding new immersive experiences through entertainment, digital media and licensing. While these investments enabled us to deliver very strong growth in our International business during 2011, and overall solid revenue growth for the fourth quarter and full year, we did not meet our expectations for growth in the U.S. and Canada including in the Games & Puzzle business.

When we look to our success in both mature and emerging markets internationally, we know and you can see that our innovation, marketing and brands are very successful. It is clear we can do better in the U.S. and Canada. In both this business and in gaming, we have taken steps to deliver more innovation and growth through the direction of new leadership and the implementation of new plans. I will speak to this more in detail shortly, but let's first review a number of successes from 2011.

Revenue grew 7%, reaching $4.29 billion for the year, ahead of our 5% compound annual growth rate target for revenue. As a result of our expanded global footprint, marketing and brand innovation, the International segment grew 19% or 16% without the benefit of the foreign exchange impact. Revenue grew in every major territory internationally, in both mature and emerging markets, and we gained share in 9 of the 10 countries for which we have third-party data.

As we indicated and planned, we are growing in Latin America, posting 19% growth during 2011 and at Asia Pacific, where we continue to have strong growth, up 24% in 2011 as we establish our presence in emerging markets and grow our business in mature markets.

In 2011, Hasbro was the fastest-growing major toy company in Western Europe. We gained 1.4 percentage points in market share, and have achieved market share leadership in 3 European countries. Through the successful implementation of our branded play strategy, which at the core, focuses on the innovation and invention of Hasbro brands worldwide, we are building bigger and more global brands. In 2011, several brands were more than $400 million of annual revenue including Transformers, which posted $483 million in revenue growing more than 85% year-over-year. Beyblade delivered $477 million in revenues on strong growth in the U.S. and international markets. And Nerf, which has grown fourfold over the past 5 years, was $410 million in revenue in 2011, essentially flat with 2010 and driven by strong growth overseas. The Nerf team continues to deliver great innovation for the brand and we have 2 major new initiatives planned for 2012.

In addition to innovation within our core brands, we are inventing new global brands. In 2011, we successfully launched key initiatives including KRE-O and Sesame Street. Beginning in July 2011, KRE-O launched in 10 markets globally, generating tens of millions of dollars in revenue and good early market share. In 2012, we will add 15 new markets by year end, as well as expand the line to include Battleship supported by our major motion picture with Universal.

2011 was also our first year with Sesame Street and marked a great first step toward building a year-round global brand. To do this, we are creating play experiences around a number of Sesame Street characters, which engage children and help them to learn. We are very excited about the potential of this brand over the coming years.

Hasbro's inventory levels at year end are down 8%. In the U.S., retail inventory was essentially flat and of better overall quality than last year. Given the growth in our business internationally, retail inventories grew in many countries, but we are comfortable with the quality and level of inventory.

In 2011, we also funded important investments, which expanded our global capabilities in sales, marketing, licensing, entertainment and infrastructure.

And finally, we grew EPS for the 11th consecutive year while returning $577 million to shareholders through our stock buyback and quarterly dividend programs. Last week, the board voted to increase our quarterly dividend 20% to $0.36 per share, marking the third year in a row we have grown our dividend 20% or more.

In total, there were a number of things that worked well for Hasbro in 2011. However, despite these significant accomplishments, the year did not meet our performance expectations. Our U.S. and Canada segment declined 2%, weakening most notably post-Thanksgiving when the positive point of sale trends we had seen early in the quarter did not continue. This decline was in line with the industry decline in the U.S., reflecting a challenging economic environment but was not up to our expectations. As a result, we made some strategic moves in the leadership of our business. Wiebe Tinga, who many of you heard from at our Investor Day in November, has taken over as President of the U.S. and Canada business. He is a 24-year veteran of Hasbro, most recently serving as President of Asia-Pacific and Latin America and has been instrumental in the company's expansion in key emerging markets. In this role, Wiebe has built a strong team both in Asia-Pacific and Latin America, and the heads of these regions are now reporting directly to David Hargreaves, Hasbro's COO. Wiebe brings a tremendous track record of strong performance, and I'm delighted to have someone with his experience, passion and financial discipline to step in and lead our U.S. and Canada teams. He and the team are focused on returning the business to historical levels of profitability and rebuilding our share in the region by capitalizing on the strength of Hasbro innovation, marketing and brands as he has done successfully around the world.

Read the rest of this transcript for free on seekingalpha.com