Hasbro Inc (HAS.O) topped Wall Street profit expectations on Monday as better inventory management and cost controls helped offset weak sales at the second-largest U.S. toymaker.
The news came after larger rival Mattel Inc (MAT.O) also reported a higher-than-expected quarterly profit, supported by price increases and cost controls. The maker of Barbie dolls and Hot Wheels cars said it was well-positioned for the holidays.
Hasbro, whose brands include Monopoly, G.I. Joe, Nerf and Mr. Potato Head, has been working with its U.S. retail partners to better manage inventories this year. It has been trying to shift toy deliveries closer to peak demand times.
It struggled in late 2011 when demand in the United States and Canada tapered off after a strong start to what is typically the biggest selling season of the year.
Hasbro is counting on retailers to this year order more inventory in the fourth quarter once they have a better read on consumer demand, Needham & Co analyst Sean McGowan said. "That is not to say they are expecting consumer demand to be much higher, but more a reflection of the fact that last year and for years before that, they simply shipped more before the fourth quarter than they should have," he added.
"However, if retailers don't like what they see, they can easily cancel orders, and I think there is a risk of that happening again," McGowan said.
On Monday, Hasbro Chief Financial Officer Deborah Thomas said the company plans to step up its marketing efforts in what she described as "an environment of significantly lower U.S. retail inventory."
The toymaker said to drive demand in the fourth quarter they will increase ad spending 30 percent to 40 percent across television, social media and other online avenues.
Hasbro said it expects revenue and earnings per share to increase for the full-year 2012, excluding the impact of foreign exchange.
Net profit in the third quarter fell to $164.9 million, or $1.24 a share, from $171.0 million, or $1.27 per share, a year ago. Analysts on average expected $1.20 per share, according to Thomson Reuters I/B/E/S.
Sales fell 2 percent to $1.35 billion, below analysts' average estimate of $1.38 billion. Hasbro's toy unit for girls, reinvigorated by the launch of hot toys such as Furby, saw a 17 percent rise in revenue, but sales at its boys' unit fell 12 percent, and those at its preschool division lost 5 percent.
Hasbro's shares initially gained in early trading, but slipped at mid-morning and were off about 30 cents at $38.75 on Nasdaq.
Furby, an update of the furry toy from the 1990s, "is off to a great start," Hasbro CEO Brian Goldner said on a conference call. Goldner was also optimistic about Hasbro's game business, which has long been a drag on profits.
In the third quarter, the games business was flat year over year, breaking seven consecutive quarters of declines. Goldner expects more improvement in that business as Hasbro's new offerings, ranging from the Angry Birds Star Wars game to Hasbro Zynga games, hit stores in time for holiday buying.
(Additional reporting by Siddharth Cavale in Bangalore; Editing by John Wallace and Maureen Bavdek)