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NEW YORK (Reuters) - Hasbro Inc's profit fell almost 71 percent in a seasonally weak quarter when the toymaker spent more money to develop its new television channel, The Hub.
Shares of Hasbro, the second-largest U.S. toy company after Mattel Inc, were down more than 3 percent in afternoon trading.
Hasbro launched children's TV channel The Hub last year in a joint venture with Discovery Communications Inc.
"They have tried to condition investors to recognize that it's going to take some time to build a cable network ... They are essentially building one from scratch," Stifel Nicolaus analyst Drew Crum said. "The Discovery kids network was a malnourished network with Discovery."
"Strategically we like what they are doing," he said. "The Hub's going to allow them to exploit their brands through continuous consumer impressions that should translate to higher toy and game revenue."
Hasbro said in a statement that its share of The Hub had a loss of $2 million in the quarter. It recorded channel-related costs under "other expenses," which totaled $4.7 million compared with $1.7 million a year ago.
Starting a TV channel is expensive. News Corp, for example, spent about $100 million to launch Fox Business Channel and about $400 million to launch Fox News.
On a conference call after the company's earnings news, Hasbro's Chief Executive Brian Goldner urged investors to be patient as the company rolls out its shows this year in as many as 20 countries in Europe, Asia and Latin America.
The maker of Nerf foam toys and the Monopoly board game said it still expected sales and profit to rise in 2011.
"Hasbro, over the longer term, has more growth opportunities than Mattel, with entertainment, with the cable TV and with the strong brand arsenal that it has to penetrate in globalized markets," said Sterne Agee analyst Margaret Whitfield.
Whitfield has a "buy" rating on both stocks. Mattel is due to report its results on Friday.
Hasbro said first-quarter net profit fell to $17.2 million, or 12 cents a share, from $58.9 million, or 40 cents a share, a year earlier.
In addition to costs related to The Hub, Hasbro saw weak demand for games, puzzles and preschool toys.
Sales were almost flat at $672 million, but beat analysts' average estimate of $660.4 million, according to Thomson Reuters I/B/E/S. Revenue included a $4.8 million foreign exchange benefit.
Globally, Hasbro's sales of boys' products rose 25 percent, but the company posted declines of 12 percent in games and puzzles, 13 percent in the girls' unit and 18 percent in preschool toys.
Hasbro has a big entertainment lineup for this year, including toys based on movies such as "Transformers: Dark of the Moon", "Thor" and "Captain America: the First Avenger". It is also planning to take Hasbro Studios television programs beyond the United States this year.
Hasbro's shares were down 3.43 percent at $44.21 in afternoon trading on Nasdaq.
Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn and Maureen Bavdek