HAS

Hasbro, Inc. (HAS)

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Hasbro (HAS)

Q4 2010 Earnings Call

February 07, 2011 8:30 am ET

Executives

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

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

Debbie Hancock - VP, IR

David Hargreaves - Chief Operating Officer

Analysts

Eric Handler - MKM Partners LLC

Michael Kelter - Goldman Sachs Group Inc.

Gerrick Johnson - BMO Capital Markets U.S.

David Leibowitz - Burnham Financial Group

Andrew Crum - Stifel, Nicolaus & Co., Inc.

John Taylor - Arcadia

Timothy Conder - Wells Fargo Securities, LLC

Robert Carroll - UBS Investment Bank

Gregory Badishkanian - Citigroup Inc

James Chartier - Moness, Crespi, Hardt

Margaret Whitfield - Sterne Agee & Leach Inc.

Sean McGowan - Needham & Company, LLC

Presentation

Operator

Good morning, and welcome to the Hasbro Fourth Quarter 2010 Earnings Conference Call. [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 2010 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 objectives.

There are many factors that could cause actual results in 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 Goldner

Thank you, Debbie. Good morning, everyone, and thank you for joining us today. As we entered 2010, we shared with you our vision to continue reinventing, reimagining and reigniting the industry's broadest portfolio of world-class brands. At the time, we characterized 2010 as a year of singles and doubles, meaning we were relying on growth from brands across our portfolio to drive our business, following our very strong performance in 2009.

In 2010, we accomplished many elements of our strategy: growing market share across five of the 11 NPD super categories in the U.S. and six of the 11 NPD super categories in Europe, delivering significant growth in several reimagined brands, and growing EPS for the 10th consecutive year.

A number of strong performances drove these accomplishments. Our International segment turned in a tremendous year, posting 7% revenue growth. Product revenues grew in every category, Boys, Games and Puzzles, Girls and Preschool.

The emerging markets contributed strong growth, and with continuously improving profitability, helped support the International segment's 29% overall growth in operating profit, which increased both in dollars, up $47.5 million, and as a percentage of revenues to 13.4% versus 11.1% in 2009.

Globally, our Preschool category grew 13%, driven by continued strong growth in PLAYSKOOL, PLAY-DOH and TONKA. The Girls category increased 5% on strong performances from FURREAL FRIENDS, which more than doubled its revenues in 2010, as well as growth in BABY ALIVE and STRAWBERRY SHORTCAKE.

In our Boys category, NERF extended its recent performance of strong year-over-year gains, increasing 51% to reach $414 million in revenue, making it our largest brand of the year. BEYBLADE was relaunched, and is off to a very strong start in the U.S. and international markets.

TONKA grew in 2010, helping us gain share in the Vehicles category, and our Marvel business was up on the strength of Iron Man. Finally, several reimagined games' brands turned in strong performances, including Magic: The Gathering, SCRABBLE, CUPONK, BOP IT and Toy Story-related games. Having said this, we did not grow revenues in 2010.

We believe the revenue shortfall was due to a convergence of a few negative factors late in the final quarter of the year, and is not emblematic of our long-term business, which remains on track for growth in 2011 and beyond.

As you'll recall in 2009, revenue for Transformers and G.I. JOE topped $700 million through the immersive experiences we provided consumers for two very successful motion pictures. We knew that in order to grow our business in 2010, we would need to achieve growth of $300 million to $400 million across Hasbro's brand portfolio to compensate for the traditional level of decline one might expect from movie-backed properties the year after a film. Our brands came very close to achieving this level of growth.

In the games category, our U.S. business softened late in the holiday period, when we rely on consumer take away to fuel reorders from our retailers. In addition, we had shipped more products earlier in the year to avoid potential container shipment shortages. And with slower consumer take away late in the fourth quarter than anticipated, retailers had sufficient inventory on hand and placed fewer reorders.

On average, over a third of the annual Games business is typically purchased in the final six weeks of the year. Retailers entered the Christmas holiday season with inventory to support this trend, yet consumer demand did not fully develop across our broad Games portfolio.

As we reimagine and reignite our Games business, it is important to note that more people are enjoying Hasbro's games than ever before, just in new and different ways. In fact, in 2010, our brands experienced a greater than 50% increase in mobile downloads. The growth is indicative of the resonance and ubiquity of our brands, which consumers will pay to experience across casual gaming platforms.

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