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Will Weak Demand Weigh on Hasbro's (HAS) Q3 Earnings?

Hasbro Inc.HAS is slated to report its third-quarter 2015 results before the market opens on Oct 19, 2015. Last quarter, the company posted a positive earnings surprise of 13.79%. The company posted positive earnings surprises in three of the trailing four quarters and has a four-quarter average positive earnings surprise of 36.61%. Let's see what is in store this season.

Factors to Consider

The Boys segment posted growth in the last reported quarter - marking the sixth consecutive quarter of growth - on strong consumer insights, global digital content, innovative products and comprehensive retail execution.

However, lack of growth at other brands continues to hurt overall revenues. Weak performances of some of its brands like Furby, Nerf, Furreal Friends, My Little Pony, Playskool and Tonka, Duelmasters and Angry Birds products are offsetting the growth derived from other well performing products.

Weak demand for traditional toys and increasing inclination of kids toward electronically driven devices has adversely impacted the demand for Hasbro's products. This would continue to keep the top line under pressure. Meanwhile, the Girls segment has been experiencing a year-over-year decline in revenues for three consecutive quarters.

Nevertheless, Hasbro's consistent efforts to establish its presence worldwide through strategic partnerships and rapid growth in the emerging markets are expected to offset the impact of these negatives to some extent. Meanwhile, the company's motion picture projects for its brands and efforts to capitalize on the digital gaming market should bode well for the company's growth.

However, we would like to remind investors that costs related to execute initiatives taken by the company would continue to hurt profits in the soon-to-be reported quarter. Meanwhile, Hasbro has considerable international presence and is therefore highly vulnerable to fluctuations in exchange rates. Foreign exchange translation has been hurting revenues of the company over the past couple of quarters and the trend is likely to continue in the soon-to be reported quarter.

Earnings Whispers?

Our proven model does not conclusively show that Hasbro is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP : Earnings ESP, which represents the difference between the Most Accurate estimate of $1.50 and the Zacks Consensus Estimate of $1.51 stands at -0.66%.

Zacks Rank : Hasbro's Zacks Rank #2 (Buy) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the toys industry and the broader consumer discretionary sector that investors may consider. Our model shows that these have the right combination of elements to post an earnings beat this quarter:

JAKKS Pacific, Inc. JAKK with an Earnings ESP of +4.51% and a Zacks Rank #3 (Hold).

LeapFrog Enterprises Inc. LF with an Earnings ESP of +16.67% and a Zacks Rank #3.

Norwegian Cruise Line Holdings Ltd. NCLH with an Earnings ESP of +1.48% and a Zacks Rank #1 (Strong Buy).

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JAKKS PACIFIC (JAKK): Free Stock Analysis Report

HASBRO INC (HAS): Free Stock Analysis Report

LEAPFROG ENTRPS (LF): Free Stock Analysis Report

NORWEGIAN CRUIS (NCLH): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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