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Hasbro Profit Tops Views; CEO to Step Down

Hasbroposted a better-than-expected quarterly profit Monday, boosted by strong demand for its Transformers, Nerf and Furreal Friends product lines, helping to send shares up as much as 4 percent.

The second-largest U.S. toy maker also said that Chief Executive Al Verrecchia would step down as CEO and become the company's chairman. Brian Goldner, its chief operating officer, will become CEO as of May 22.

Hasbro.com
Hasbro.com

The company said Verrecchia will transition to his role as nonexecutive chairman at the end of the year, replacing Alan Hassenfeld, grandson of Hasbro founder Henry Hassenfeld.

Fourth-quarter earnings rose to $133.7 million, or 84 cents a share, from $108.3 million, or 62 cents a share, a year earlier.

Quarterly sales rose 16 percent to $1.3 billion.

Analysts on average were expecting profit of 81 cents a share on sales of about $1.22 billion, according to Reuters Estimates.

Hasbro's shares were up 48 cents, or 1.9 percent, to $26.35 in early afternoon trading on the New York Stock Exchange, after rising as much as 4.2 percent earlier in the session.

"On a global basis, our boys, girls, preschool, and games and puzzles categories all performed well," Verrecchia told a conference call.

The results come two weeks after industry leader Mattel posted a better-than-expected fourth-quarter profit despite a 3 percent decline in gross U.S. sales and publicity surrounding the recall of millions of its toys due to safety and lead paint concerns.

"Hasbro is clearly showing that they have been firing on all cylinders," said Thomas Russo, who helps manage more than $3 billion at Gardner Russo & Gardner.

"They've had success driving revenues while at the same time controlling costs," said Russo, whose firm owns about 3 million Hasbro shares.

Sales during the quarter rose 8 percent at Hasbro's North American division, the company said, although operating profit fell 22 percent partly due to higher royalties and advertising expenses. Operating profit was also affected by Hasbro's investment in its Wizards of the Coast online gaming initiative.

Hasbro's international segment sales, meanwhile, climbed 29 percent as operating profit rose 40 percent.

The fourth quarter is the most important time of year for toy companies because it includes the holiday shopping season, when the industry rings up nearly half its annual sales, according to market research firm NPD Group.

Rising Costs

Looking ahead, Hasbro said costs will climb this year due to the rising price of labor and commodities, the appreciation of the Chinese currency, and product testing.

Many of Hasbro's toys are manufactured in China.

"So clearly there will be some price increases this year," Verrecchia said. We'll continue to look to improve our efficiencies in the supply chain."

Meanwhile, the company will look to the Transformers animated television series to help one of its key product lines maintain momentum this year until the movie sequel in 2009.

Last year, toys based on the Transformers film helped drive its boys division.

Later this year, the company will roll out toys tied to the films "Iron Man," "The Incredible Hulk" and "Indiana Jones and the Kingdom of the Crystal Skull."

Hasbro's stock was trading early Monday afternoon at 12.74 times 2008 earnings, a premium to rival Mattel, which was trading at a multiple of 12.51 times 2008 earnings.