HAS

Hasbro, Inc. (HAS)

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Hasbro (HAS)

Q2 2011 Earnings Call

July 18, 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.

Felicia Hendrix - Barclays Capital

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

Timothy Conder - Wells Fargo Securities, LLC

Robert Carroll - UBS Investment Bank

Gregory Badishkanian - Citigroup Inc

Alex Cook

Sean McGowan - Needham & Company, LLC

Presentation

Operator

Good morning, and welcome to the Hasbro Second Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. If you have any objections, you may disconnect at this time. At this time, I would 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 second quarter 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 Goldner

Thank you, Debbie. Good morning, everyone, and thank you for joining us today. The Hasbro team executed our global branded-play strategy to deliver not only a strong second quarter, but also continuing to create the framework to deliver meaningful growth for the year and in the coming years.

Today, we are driving growth in our business through immersive brand experiences which are more innovative, more global and increasingly backed by media and entertainment, and in many cases, backed by digital and online gaming.

In addition, we are licensing our brands in a growing number of relevant ways for global customers and consumers. We are executing our full brand blueprint for Hasbro brands, while working with great long-term partners to support their brands, including Marvel, Lucasfilm and Sesame Workshop. To execute this strategy we are leveraging the investments we have made and are continuing to make to expand the reach of our brands for the long-term growth of our business.

Despite being in the early stages of unlocking both the revenue and earnings potential of our strategy, in some areas, we're already seeing positive results from our investments. For example, our International business is growing, posting 43% revenue growth in the second quarter or 30% growth, absent the impact of foreign exchange. This marks our third consecutive quarter of double-digit revenue growth in the segment. The growth this quarter comes not only from the continued strong performance in our emerging markets, where we are establishing Hasbro's presence for the long-term, but from other more mature markets as well.

We are at an inflection point in our business, whereby you can no longer just look at the U.S. business and extrapolate that to represent all of Hasbro. International is as important to us now as the U.S. and will be even more meaningful go forward. In fact, we could see revenue outside the U.S. greater than our U.S. revenue in the coming years. A balanced global business not only provides incremental growth opportunities but has served to help offset some of the continued challenges in the U.S. economy.

In the quarter, the profitability of the international segment nearly tripled as higher revenue more than offset investments in the segment. This profitability growth in the second quarter is very encouraging, given the segment generally contributes more to our profitability in the second half of the year. Specifically, over the last 5 years, the second half of the year has represented, on average, virtually all of the International segment's full year operating profits.

From a brand and entertainment standpoint, the second quarter marked the theatrical release of TRANSFORMERS: Dark of the Moon, as well as the on-shelf date of product to retailers globally. The movie has delivered approximately $700 million at the global box office and has yet to open in China and Japan.

The film has the highest exit poll reviews from audiences of any of the prior TRANSFORMERS movies, and this bodes well for sustained interest until the DVD arrives in the fall, backed by an extensive home-entertainment strategy from Paramount during the fourth quarter.

Importantly, our global retail partners have embraced the TRANSFORMERS: Dark of the Moon merchandise program in toys, apparel, publishing DVD, video game and other licensed goods. These merchandise programs include significant aisle space, feature shops, trend pods, endcaps, pallets and more. Promotional programs at retail ramped in mid-June, as promotion for the movie began in earnest at that time. We have a great licensing program, with over 325 licensing partners. Product is available through our global retail partners, and we have everything from apparel to skateboards and bikes to publishing.

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