* Q2 EPS $0.26; Wall Street view $0.23
* Q2 net sales up 1 percent
* Discovery tie-up to cost less than previously thought
* Still expects sales, earnings growth for the year
* Shares up 3.4 percent; Mattel shares rise 3.0 percent (Adds more analyst comments, details, updates share move)
By Aarthi Sivaraman
NEW YORK, July 20 (Reuters) - Hasbro Inc HAS.N posted a higher-than-expected quarterly profit on Monday, citing strong demand for its movie-themed toys, and said its cable TV deal would cost it less than originally thought.
Hasbro, whose shares rose 3.4 percent, formed a joint venture with Discovery Communications Inc (DISCA.O) earlier this year to create a television network aimed at children.
The world’s No. 2 toymaker, behind Mattel Inc MAT.N, originally said the deal would reduce its earnings by 25 cents to 30 cents per share in 2009 and by 30 cents to 35 cents in 2010. That forecast sent its shares down 5 percent.
Now Hasbro expects the deal to cost it only 15 cents to 20 cents per share in 2009 and 25 cents to 30 cents in 2010.
The change in forecast, despite the fact that the network debuts in late 2010 and has not even been named, was Hasbro’s way of appeasing investors who had questioned the deal, said Wedbush Morgan Securities analyst Chris White.
“I think the (initial) market reaction to the deal is driving their desire to show that it’s not going to be as dilutive as they originally thought,” White said.
Hasbro also forecast profit and sales growth this year.
“Investors will like the fact that the guidance is for earnings and sales growth, in light of the fact that the Discovery ... dilution will be less than originally thought,” said BMO Capital Markets analyst Gerrick Johnson.
Hasbro said second-quarter net profit rose to $39.3 million, or 26 cents a share, from $37.5 million, or 25 cents a share, a year earlier.
Analysts’ average forecast was 23 cents a share, according to Reuters Estimates.
Sales rose 1 percent to $792.2 million. International sales fell nearly 6 percent as the stronger U.S. dollar reduced the value of overseas sales. Sales rose 19 percent for Hasbro’s boys’ business, which includes the Transformers and G.I. Joe brands.
This year, Hasbro has an advantage over Mattel because of a lineup of toys tied to movies such as “Transformers - Revenge of the Fallen” and “G.I. Joe - The Rise of the Cobra.” Summer movies tend to drive sales for corresponding toy brands -- a lift analysts consider much-needed in the recession.
Wells Fargo Securities analyst Tim Conder said in a note that he expects the benefit to Hasbro from movie-related toys to continue into 2010, when the company will also have toys tied to the “Iron Man 2” and “Toy Story 3” movies.
The boost comes as toy companies battle shrinking demand from retailers, which are stocking fewer items in line with weak consumer demand.
Both Hasbro and Mattel, which posted a higher-than-expected quarterly profit last week, have trimmed costs to offset sales pressure. [ID:nN17454485]
Hasbro cut out nearly $13 million of expenses in areas like advertising and administration in the second quarter, while Mattel eliminated $91 million in similar costs.
Hasbro is launching its Littlest Pet Shop brand online in the United States this fall and globally next spring.
Programs on the Hasbro-Discovery TV network will feature Hasbro brands such as G.I. Joe, My Little Pony and Transformers. The programs will also be available online.
Hasbro shares were up 87 cents at $26.25 and Mattel was up 53 cents to $17.95 in midday trade on the New York Stock Exchange. (Reporting by Aarthi Sivaraman; Editing by Gerald E. McCormick and John Wallace)