Toy maker Hasbro  (NAS: HAS) has been playing second fiddle to Mattel's (NAS: MAT) lead for a while now. The newest earnings report doesn't do anything to change that. Earnings fell, but not as far as analysts had expected, and at midday, the stock was relatively flat. There were a few high points in the release, but will they be enough to keep investors interested, or is this a stock we should all be running from? Here's a rundown of where Hasbro stands now, and where it's headed.

Earnings like autumn leaves
Hasbro has been facing adversity in its boys product line this year, and this quarter was no different. Sales in the segment fell 12%, in large part due to the comparison against a strong 2011. Last year, the company had tie-ins with the newest Transformers movie and the popular Beyblade anime series. While those relationships have continued, this year's new movie lineup ended up being a dud for Hasbro -- remember Battleship? Overall, earnings per share fell 2% compared to 2011.

While the EPS of $1.24 was a decline, it still beat analysts' estimates, which had pegged EPS at $1.20. The uplift came from a few bright spots on the company's income statement. North American revenue grew 1%, and due to an increase in operating margins, the segment grew operating profit by 20%. Revenue in the girls segment also jumped, rising 17% on the strength of the Furby and My Little Pony lines. 


The biggest fall for the company came from its international division, which suffered from unfavorable foreign exchange rates. Without that impact, revenue would have grown 1% over the year. But the rates ended up cutting 800 basis points off growth, and drove international revenue down 7%.

The quarter to come
There are a few things that investors need to take into account with Hasbro. First, it's a second-place company. Hasbro is unlikely to ever surpass Mattel in size or popularity, simply due to Mattel's massive lead. While Hasbro is a $5 billion company with $4 billion in annual revenue, Mattel is a $13 billion company with over $6 billion in annual revenue. But second place isn't necessarily a bad place to be.

Second place means that Hasbro is bigger than everyone except Mattel. Hasbro has seen some excellent returns recently, and 2010-2011 was an especially good run. Hasbro's management team has shown the potential to make good deals and take advantage of opportunities when they're presented. The reason the stock hasn't fallen much today is that, really, Hasbro is doing a lot of things right. The impact of foreign currency is important to watch, but it can easily cloud the fact that Hasbro has grown sales.

That leads us to the next quarter, and what it means for Hasbro. Christmas is obviously a big deal for toy makers. Last year, Hasbro posted almost a third of its revenue in the fourth quarter. The challenge for the company will be in promoting its major lines enough to generate momentum going into the holidays. Right now, the company is still relying heavily on its boys segment to drive revenue, which means that the newer lines in that segment need to step it up for the season.

Investors should keep an eye on the popularity of Hasbro's lines of battling toys for boys. These include the popular Beyblade series, along with new entrants, including Marvel branded Bonkazonks. Hasbro is also making an interesting push with Zynga  (NAS: ZNGA) branded board games. The move could prove to be an excellent addition to the company's games segment, which has stagnated over the last year.

The bottom line
One of the things that I like about toy companies, apart from the obvious, is that you can tell if a company is doing well just by looking in your local stores. Hasbro pulls in over 40% of its yearly sales from Wal-Mart, Target, and Toys R Us. Want to know how your investment is doing? Check out the stores.

Hasbro is a solid hold for me. The company is too up-and-down to buy, but nothing about the downturn is dire enough to warrant selling it off. I think there's a lot of room for growth ahead, but it's going to be up to management to make more consistent decisions to take advantage of that growth. 

As for Zynga, teaming up with Hasbro is wise, but its post-IPO performance has been dreadful, and investors are beginning to wonder if it's already game-over for this newly public company. You can learn everything you need to know about Zynga and whether it's a buy or a sell in our new premium research report. Don't even think about picking up shares before you read what our top analysts have to say about the company. Click here to access your copy now.

 

The article Hasbro Comes in Second -- Again originally appeared on Fool.com.

Fool contributor Andrew Marder has no positions in the stocks mentioned above. The Motley Fool owns shares of Hasbro and Mattel. Motley Fool newsletter services recommend Hasbro and Mattel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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