Hasbro profit tops view; costs remain challenging

NEW YORK (Reuters) - Toymaker Hasbro Inc HAS.N posted higher-than-expected quarterly profit on Monday, helped by sales of toys tied to movies like the latest "Indiana Jones" and brands such as G.I. Joe, and unveiled plans to hike prices to combat rising costs.

Toy demonstrator Brian Marvant operates the "Remote Control Wallcrawler Spider-Man" at the Hasbro showroom during the opening day of the American International Toy Fair in New York, February 17, 2008. REUTERS/Ray Stubblebine/Hasbro/Handout

Hasbro shares fell 4 percent, hurt in part by the company’s comments on costs, said Chris White, a Wedbush Morgan Securities analyst.

“Clearly, they are starting to feel (the effect of rising costs), and the question now is, how big is it?”

Second-quarter profit rose to $37.5 million, or 25 cents a share, from $4.8 million, or 3 cents a share, a year earlier, when Hasbro took a charge for repurchasing warrants from Lucasfilm and Lucas Licensing.

Analysts, on average, had expected a profit of 22 cents per share, according to Reuters Estimates.

Hasbro, the No. 2 U.S. toymaker after Mattel Inc MAT.N, said sales rose 13 percent to $784.3 million.

The owner of brands such as Playskool and Littlest Pet Shop said U.S. and Canadian sales rose 11 percent to $467.7 million, while sales in international markets increased 15 percent to $293.7 million, aided by the weak dollar.

Toy companies such as Hasbro and Mattel typically look to the holiday months for the lion’s share of their annual sales. This year, however, shoppers hit by record-high fuel prices, increases in food costs and a housing market downturn have slashed their spending, stoking worries about how the holiday shopping season will pan out for retailers.

Toymakers are being slammed by high commodity prices. Hasbro has also cited higher costs for transporting its goods, despite expecting higher earnings this year.

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“While input cost inflation continues to be challenging, thus far we have been able to mitigate most of the impact through cost savings initiatives and pricing actions,” Hasbro Chief Operating Officer and Chief Financial Officer David Hargreaves said in a statement.

Effective September 1, Hasbro will raise prices for its toys in the mid-single-digit percentage range to protect its margins, Hargreaves added on a conference call.

Mattel raised prices on most of its products by mid- to high-single-digit rates in June.

Despite the price increases, toymakers bet that parents will not cut back on buying toys, even if they are hard pressed for cash.

Mattel Chief Executive Bob Eckert sought to soothe concerns last week, saying, “There’s no reason to believe, based on what we have seen so far this year or last Christmas, that the toy business won’t continue to perform well.”

Stern Agee analyst Margaret Whitfield agreed, adding that relatively low prices for toys make them affordable, despite the price increases.

“Toys are priced typically under $20. A price increase to keep pace with input costs is not as significant as it would be in the case of a higher-priced consumer product,’ Whitfield said.

Reiterating his “outperform” rating on Hasbro, Wachovia analyst Timothy Conder cited an opportunity for toy companies to post “solid” 2008 earnings growth.

Hasbro said it spent $51.6 million to buy back 1.65 million shares of its common stock during the second quarter.

Hasbro shares were down $1.50 to $36.49 in morning trade on the New York Stock Exchange after falling as low as $35.86 earlier in the session. The shares have traded as low as $21.70 and as high as $39.97 in the past year.

Reporting by Aarthi Sivaraman; Editing by Maureen Bavdek and John Wallace