孩之寶 (HAS) 2012 Q3 法說會逐字稿

Good morning, and welcome to the Hasbro Third Quarter 2012 earnings conference call.

At this time all parties will be in a listen-only mode.

A brief question-and- answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded.

If you have any objections, you may disconnect at this time.

At this time, I'd like to turn the call over to Ms. Debbie Hancock, Vice President of Investor Relations.

Please go ahead.

Thank you, and good morning everyone.

Our third quarter earnings release was issued earlier this morning and is available on our website.

Additionally, also available on our website are presentation slides containing information covered in today's earnings release and call.

The press release and presentation include information regarding non-GAAP financial measures included in today's call.

Please note that during today's call whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.

This morning, Brian Goldner, Hasbro's President and Chief Executive Officer, and Deb Thomas, Hasbro's Chief Financial Officer, will review our third quarter financial results and discuss important factors impacting our performance.

Following their statements, David Hargreaves, Hasbro's Chief Operating Officer, will join Brian and Deb to field your questions.

Before we begin, please note during this call and the question-and-answer session that follows, members of Hasbro's Management may make forward-looking statements concerning Managements expectations, goals, objectives and similar matters.

These forward-looking statements may include comments concerning our product and entertainment plans, anticipated product performance, business opportunities, plans and strategies, costs, financial goals and expectations for our future financial performance, including expectations for revenues and EPS in 2012.

There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements.

Some of those factors are set forth in our Annual Report on Form 10-K, our most recent 10-Q, in today's press release, and in our other public disclosures.

You should review such factors together with any forward-looking statements made on today's call.

We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.

Now, I would like to introduce Brian Goldner.

Brian?

Thank you, Debbie.

Good morning everyone and thank you for joining us today.

As early as November of last year, we communicated with you several key objectives for 2012, including growing revenues and earnings per share for the full year, absent the impact of foreign exchange, returning the US and Canada segment to historical operating profit margins, executing globally by leveraging our investments in new and emerging markets, stabilizing our Games business and positioning it for growth in 2013 and beyond, and growing our Girls business.

Nine months into the year we are delivering on these objectives and we believe we are well positioned to achieve them for the full year 2012 in a challenging environment.

Now as we enter the holiday season, it's all about new Hasbro and partner initiatives across brands, categories and geographies, including reimagined and completely new brands.

Furby is one of the most exciting new initiatives for the holiday season and is off to a great start.

The team did a tremendous job reimagining this brand for today's consumers by integrating innovative new technologies with a great all new personality that develops depending on how you interact with your Furby.

For more interactive fun you can download the free App to virtually feed Furby and access a Furbish to English dictionary.

Furby is available in English-speaking markets this holiday season and will ship globally in 2013.

Backed by two tremendously successful films, we have seen good momentum with our Marvel products throughout 2012.

Similar to how we are building Hasbro brand franchises, we partnered with Marvel to expand into new categories, including Games and Preschool, and to execute across markets globally.

We have the innovative new items for the holiday for both Marvel's the Avengers and the Amazing Spiderman.

In addition to Furby and our Marvel line we believe we have the strongest holiday line in a number of years, including great new products from brands like FurReal Friends, Baby Alive, My Little Pony, Littlest Pet Shop, One Direction, Nerf, Koosh, Beyblade, Transformers, PlaySkool and Play-Doh.

You can see many of these initiatives on Page 5 of the presentation.

As with toys, our Games line for the holiday 2012 is the strongest it has been in years.

The Hasbro brands and innovative platforms created by our new Games team come together for the first time this holiday season.

We completely reimagined Twister as Twister Dance and is off to a strong start.

An entirely new Lazer Tag is delivering live laser combat integrated with your iPhone and iPod.

Within our Monopoly brand, the Monopoly Millionaire game is all new and the first to $1 million wins.

This summer we launched Kaijudo -- Rise of the Dual Masters, an all new brand from Wizards of the Coast.

Kaijudo features an online battle game, trading card game, an online trading card game, and a television series airing in the US on The Hub TV network.

We have also established new partnerships in the gaming space which are coming to retail this fourth quarter, along with Rovio Entertainment and Lucasfilm we've announced a line of games and toys based on Angry Birds Star Wars.

Also our new line of Zynga Games including Words with Friends, Cityville, and Draw Something is available for the holidays.

Leading up to the holiday and as we execute 2012 we have reemphasized building a consumer centric organization and executional plan.

This starts by having the right brands with innovation based on great consumer insights, ensuring the right inventory is at retail when the consumer is shopping, and partnering with our retailers to develop integrated marketing campaigns.

This is our model for future years.

In the US and Canada segment, we set the objective to return to historical levels of operating profit margins for the full year 2012.

Year-to-date we are on track, posting an operating profit margin of 15.2% versus 13.7% last year and reaching 19.9% in the third quarter.

To drive demand in the fourth quarter we are increasing our US media support by 30% to 40% across TV, digital and social media.

Internationally, our business is more global than ever.

Our investments in emerging markets are delivering growth in many new countries, including Brazil, Peru, Chile, Colombia, Turkey, and Russia.

Overall our growth Internationally, absent foreign exchange, was more modest this quarter as mature economies in Spain and France are facing challenging economic environments.

For the quarter we again grew revenues in Latin America, which increased 9% as reported.

European revenues were flat, absent the negative impact of foreign exchange, while Asia Pacific declined, due primarily to Australia.

Many International markets face difficult comparisons against very strong Transformers and Beyblade shipments last year.

Throughout 2012, our category performance has been impacted by the later shipment pattern in the US.

Beginning in the third quarter our new initiatives are starting to have a positive impact.

As we highlighted all year, the Boys category has challenging comparisons with last year, despite very strong performance from Marvel, including Marvel the Avengers and the Amazing Spiderman, the comparisons with Transformers and Beyblade are difficult.

Also we have expanded the reach of many of our traditionally Boys only brands to outside the Boys category.

We now have strong Marvel, Star Wars and Transformers initiatives in both the Preschool and Games categories.

For the third quarter, the Girls category posted very strong growth, increasing 17% as Furby, My Little Pony, Easy Bake and One Direction all contributed to growth year-over-year.

Within key brands, Baby Wanna Walk from Baby Alive, as well as Baby Butterscotch and Bouncy My Happy-To-See-Me Pup, both from FurReal Friends, are off to a good start.

All year, we've remained positive toward our goal of growing the Girls category given the strength of our line for the holiday.

The third quarter reinforced this optimism.

Also in line with the objective we set at the beginning of the year, our Games category is stabilizing, posting flat revenues in the third quarter, and the team is positioning us for growth in 2013 and beyond.

In addition to continued strong performance from Magic -- The Gathering, we had several successful game launches this year within Boys Action Gaming as well as with Battleship.

On shelves for the holiday, Lazer Tag and Twister contributed to the category in the third quarter.

We also began shipping ahead of the fourth quarter launch for both our Angry Birds Star Wars and Hasbro Zynga games.

For the Preschool category, the brand expansion I spoke to is evident in the growth of our PlaySkool Heroes line.

Also within Preschool, we launched all new Koosh Blasters and PlaySkool Rocktivity while delivering growth in Play-Doh.

In comparison to last year, the third quarter 2011 had significant shipments for the initial launch of our Sesame Street line.

Looking across categories as we execute our branded play blueprint, content for both television and films is helping us build Hasbro's global brand franchises.

Television is driving brands including Transformers Prime and Rescue Bots, as well as My Little Pony.

Hasbro studio shows are airing in more than 170 countries worldwide and on a number of home entertainment and digital distribution platforms around the world.

In the US, the Hub continues to make significant gains in distribution and ratings.

As of the third quarter, the Hub's distribution had increased significantly and is now in more than 70 million households, making it one of the fastest growing networks year-to-date among all cable TV networks in terms of distribution gains.

Ratings also continue to grow and in the third quarter was the best in the network's history posting a 62% increase year-over-year and a 28% increase versus the second quarter 2012 in kids 2 to 11, representing the strongest growth among all kids' cable TV networks.

As we look to 2013, the global entertainment slate we're developing for product is deep and broad with several major films and continued global television support for Hasbro brands and our partners' brands.

First, GI Joe Retaliation is expected in March 2013 in 3D with our partners at Paramount.

In May, Iron Man III in 3D from Marvel Studios is scheduled for release as well as Star Trek from Paramount.

20th Century Fox is planning to release the Wolverine in July and Marvel Studios has scheduled Thor -- the Dark World in 3D for November.

Lucasfilm is also releasing in 3D Star Wars in Episode II and Episode III in September and October, respectively.

Additionally, from Hasbro and Universal, Ouija is scheduled for release next year.

As we continue developing Hasbro brands globally in 2013 and beyond, we have a number of television programs slated for next year, including Transformers Prime and Rescue Bots, Kaikudo, My Little Pony and Littlest Pet Shop.

Marvel has new programming for Ultimate Spiderman, Hulk and the Agents of Smash and Marvel's Avengers Assemble premiering in 2013, and Lucasfilm continues the successful Clone Wars series.

Working with our partners at Nelvana and d-rights, Beyblade has all new animation planned tied to new brand innovation and new entertainment to help insure Beyblade remains a vital and evergreen part of our Boys portfolio.

In closing, our focus this fourth quarter is on delivering on our objectives for 2012.

It all comes down to connecting with consumers and ensuring they give more Hasbro toys and games this holiday season than last year and we believe we have the brands and the marketing support to achieve that goal in the fourth quarter.

Now I'd like to turn the call over to Deb.

Deb?

Thank you, and good morning.

As you'll recall, beginning last November, we said our plan for this year was that it would come later, and as Brian outlined, we are on track with our plan for 2012.

In many markets, the economic environment is challenging but we are entering the all-important fourth quarter with innovative products, leading brands, and a higher level of consumer marketing programs that are just beginning to be executed.

In the third quarter, net revenues increased 1% in constant dollars.

Including a negative $47.4 million impact from foreign exchange, third quarter worldwide net revenues as reported were $1.35 billion versus $1.38 billion last year.

Operating profit for the quarter was $249.6 million or 18.6% of revenues compared to operating profit of $248.1 million or 18% of revenues in the third quarter 2011.

Net earnings for the third quarter 2012 were $164.9 million or $1.24 per diluted share.

This compares to net earnings of $171 million or $1.27 per diluted share last year.

Absent foreign exchange translation, net earnings were essentially flat year-over-year and EPS was up $0.01 to $1.28 per share versus last year.

Cash grew year-over-year to $696.7 million on $143.6 million of operating cash flow year-to-date and $538.6 million in operating cash flow over the past 12 months.

We remain in a strong cash position to fund our business and continue returning cash to our shareholders.

Looking at the third quarter 2012 results by segment, the US and Canada segment is on track with our plan to return to historical levels of operating profit.

Net revenues in this segment this quarter were $774.5 million, up 1% versus $764.6 million in 2011.

We continue to partner with our retailers to align our shipments with consumer demand.

As a result, current retail inventories in the US were down, decreasing approximately 22% from last year despite new shipments for the holiday season.

With our new holiday items now shipping, the Girls and Games category grew in the quarter and were partially offset by a decline in the Boys category and a decline in the Preschool category which faced tough comparisons against last year's initial Sesame Street launch.

As I mentioned, the US and Canada segment is on track to return to historical operating profit margins for the year.

In the quarter, operating profit increased 20% to $154.2 million and an operating profit margin of 19.9%.

This compares to last year's third quarter operating profit of $128.8 million or 16.8% of revenues.

The improvement in operating profit was the result of higher gross margins due to product mix and lower overall expenses, partially offset by higher advertising spend.

Third quarter 2012 International segment net revenues grew 1%, absent a negative foreign exchange impact of $47.1 million.

The International segment revenue as reported was $524.1 million, down 7% versus $563.3 million last year.

Latin America again posted growth in the quarter, increasing 9% year-over-year.

Absent foreign exchange, Europe was essentially flat year-over-year, and Asia Pacific declined in the quarter.

Our global footprint is bigger today than it was a few years ago.

Growth in emerging markets helps provide support to offset the challenges facing some mature markets.

From a product category standpoint, in the International segment the Games and Preschool categories were flat while the Boys and Girls categories declined.

Operating profit in the International segment decreased $15.2 million to $85.5 million or 16.3% of revenues.

Excluding foreign exchange translation, operating profit decreased by $8.1 million, primarily due to lower expense levels in the third quarter 2011 due to the timing of when certain expenses were incurred last year.

This should normalize on a full year basis.

The Entertainment and Licensing segment net revenues decreased 7% to $43.1 million compared to $46.3 million in 2011.

The segment continues to benefit from increasing sales of television content in all formats, including global television distribution, digital distribution, and home entertainment.

This was offset by year-over-year declines in movie related revenue, including lower revenues from licensed product associated with the third Transformers motion picture and a one-time movie payment of $5 million received in the third quarter last year.

For the third quarter 2012, the Entertainment and Licensing segment reported an operating profit of $10.7 million versus $15.3 million in 2011.

The decline in operating profit reflects the profit impact of the one-time payment received in 2011.

For the Company overall, cost of sales for the quarter was $586.5 million or 43.6% of revenues versus $599.5 million, which was also 43.6% of revenues last year.

From an expense standpoint, total operating expenses declined to $509 million or 37.8% of revenues versus $528.2 million or 38.4% last year.

Program production amortization in the quarter totaled $12.8 million versus $7.8 million last year.

Year-to-date in 2012, our expense totaled $26 million.

We continue to experience lower than expected program production amortization due to our current expectations of ultimate revenues and the current mix of programming.

For the full year 2012, we now expect program production amortization to be in the $40 million to $50 million range.

As we continue to gain production efficiencies, we anticipate spending lesson programming from a cash standpoint and now expect cash spend to be in the $50 million to $60 million range for the current year.

Third quarter 2012 royalties were 6.6% of revenues compared to 7.9% of revenues in 2011.

This reflects strong global growth in Marvel this year, but was more than offset by lower sales of other royalty bearing entertainment properties.

For the full year 2012, we anticipate royalties to be in the 7% to 8% of revenue range.

Our advertising to revenue ratio in the third quarter was 10% versus 9.5% in 2011, consistent with our stated plan to increase our investment in advertising in 2012.

For the full year, we continue to anticipate advertising in the 10% to 11% range.

SD&A of $210.9 million decreased $9.3 million year-over-year, primarily due to foreign exchange.

As a percentage of revenues, SD&A was 15.7% versus 16% in 2011.

We continue to target SD&A to be approximately 20% of revenues for the full year 2012.

Moving below operating profit, other expense was $1.6 million in the third quarter of 2012 versus $4.1 million in 2011.

Our 50% share of the Hub is included on this line in the P&L.

For the third quarter 2012, our share of the earnings in the Hub was a loss of $1.8 million compared to a loss of $1.5 million a year ago.

We continue to expect the Hub's impact for the full year 2012 to be in line with 2011 levels.

Our underlying tax rate in 2012 was 26.6% compared to an underlying tax rate of 25.1% through the third quarter last year.

We expect our full year tax rate to be in line with the third quarter's 26.6% rate versus the 2011 full year underlying rate of 26.2%.

Turning to the balance sheet, at quarter end, cash totaled $696.7 million compared to $187 million a year ago and $779.9 million at the end of the second quarter.

For the trailing 12 months, operating cash flow of $538.6 million includes $61.6 million in television programming costs over the period.

We continue to return cash to shareholders through our quarterly dividend program, and in the third quarter, we paid $46.9 million in cash dividends to our shareholders.

Over the past 12 months, our dividend payout has been approximately 50% of net earnings during that period.

After repurchasing approximately $5 million worth of shares in the third quarter, $212.2 million remained available at quarter end under our current share repurchase authorization.

As we discussed earlier in the year, our repurchases have been more modest in 2012, especially during the periods with lower cash generation for our business.

We continue to repurchase shares opportunistically in the open market.

The quality of our receivables portfolio is good and receivables at quarter end were $1.2 billion versus $1.26 billion last year and $651.4 million at the end of the second quarter.

DSOs were down 2 days versus last year to 80 days.

DSO improvement this year is the result of the timing of shipments and improved collections.

Inventory levels at quarter end were down $55.4 million or 11% year-over-year to $463.4 million compared to $518.9 million a year ago and $416.9 million at the end of the second quarter.

Declines in the US and Canada segment inventories were partially offset by higher International inventory, supporting our expanded International operations.

Depreciation and capital expenditures for the quarter were $31.4 million and $24.8 million, respectively.

With three quarters behind us, we've made progress toward reaching our objectives for the year, but as Brian stated, the fourth quarter is where it all comes together.

We know we have great products, strong marketing campaigns, and a focus on quality execution.

As a result, we continue to believe we can grow revenue and earnings per share, absent the impact of foreign exchange, for the full year 2012, including a modest increase in operating profit margins.

Our objective remains to grow operating profit faster than revenues in future years.

Brian, David and I are now happy to take your questions.

(Operator Instructions)

Mike Swartz, SunTrust.

Good morning everyone.

Just a quick question on the I guess on the Games business.

Could you maybe provide us some more color, you know, just around your commentary on stabilization this year, and then reverting to growth in 2013 and beyond, I guess what do your plans call for as far as category growth?

Yes, if you look at the Games business for the full year 2012, we do expect to stabilize the business.

We're focused on a number of new initiatives in the Games category, our own brands as well as some partner brands.

Our expectation really stems from the fact that some of our new initiatives are off to a great start, so as we look year-on-year new initiatives and POS growth for those new initiatives are up strongly double digits.

Also, the continued success of Magic The Gathering as a brand, Hasbro's own brands, and then we're beginning to launch Angry Birds Star Wars, beginning to launch the Zynga brands, the continuation of our Boys Action Gaming as a category, which has been successful throughout the year.

Monopoly and Laser Tag as well as Twister, some of our own brands come into the season as well, so overall, our expectation is that we would stabilize the Games business this year and position us for growth in 2013 and beyond.

Great, and I guess maybe just looked at another way, if POS in the Games category just kind of category wide continues to decline next year, would you still expect to be able to grow?

Well, I think if you look overall, our inventory in the Games business at retail is down 39% and yet POS on legacy games is down far less than that.

And so we feel that we're well positioned with the new Games initiatives, especially given the early traction we're seeing for those, particularly as we move into the US business where its been particularly pronounced as an issue.

The momentum we also have in our Magic The Gathering business, the new launch of the Kai Judo brand, which is a brand new brand from the Wizards of the Coast folks, all points us in a very positive direction of the Games business overall.

Great.

Thanks for the color.

Margaret Whitfield, Sterne, Agee.

I was wondering if I could get more color on the declines, the level of declines you're seeing for Beyblades and Transformers, and especially what is the outlook for Beyblades?

And what kind of point of sale activity are you seeing for those two brands?

Yes, Margaret, Beyblade held up very well year-to-date, if you take total year year-to-date our POS has held up relatively well.

Obviously, it's done better in the US from a POS standpoint than some of our European markets where the comps were particularly challenging, but overall, Beyblade is beating the trends, the averages one would expect in the Boys action category following a phenomenal year.

Part of that has to do with the amount of new innovation that we've put into the Beyblade business, the Bey wheels category also supported in animation.

Something that we learned from the first time around in Beyblade was to reinvent the brand as we move forward and you'll see additional reinvention next year in 2013, and new animation, and a whole new segment of product, so again, beating the trends in Beyblade and we feel very good about that brand going forward.

That's a great brand that sits alongside of great Marvel brands that have performed quite well this year.

Obviously Transformers is performing kind of on par with what one would expect as we start to get momentum, we're seeing good momentum in the TV supported product lines around the world.

And the fact that Transformers is on the air In television in 170 countries around the world bodes well for us so overall, we're just up against big comps.

If you take Beyblade and Transformers collectively together, numbers that we reported to you, but taken together, we did $961 million in those two brands a year ago, so in the Boys business we've made a lot of progress.

Marvel is certainly contributing significantly to that progress, but those are big comps particularly in certain categories, particularly in the International market and Europe in particular where the Beyblade business performed exceedingly well in the third quarter last year.

So do you think the Boys category overall can grow this year given those difficult comps?

I think that what we've said is we believe we're going to grow overall this year.

We're going to grow revenues and EPS absent FX, that's been our guidance.

We believe that.

I think the comps are challenging but we're also seeing great momentum in our Preschool business and our Girls business.

If you look at Preschool our POS is up double digits, our Girls business, our POS in the third quarter is up single digits.

There are some timing issues related to last year's third quarter where we launched Sesame Street, but you look across a lot of our categories we have a lot of great new innovation, we do have a lot of great new innovation in the Boys business including Nerf and several of our Boys action brands, but it's a challenging comp, I'm not going to commit to growth this year.

Thank you.

Felicia Hendrix, Barclays.

Hi, good morning.

Brian, you touched on point-of-sales a little bit.

Just more granularly just wondering overall what point-of-sales looked like domestically, Internationally and then just in the quarter that is, and then in Games I just wasn't clear.

I thought point-of-sales in Games, did you say it was -- can you just repeat what you said that was in the quarter?

Sure, yes.

Overall, our point-of-sale is down a bit, really driven by the Games decline in POS.

What I said was our POS decline in Games was far less than our inventory decline, thus far.

Then I said our new Games initiatives as we compare new initiatives this year to year ago is up double digits.

Okay.

So we're getting a lot of new innovation in our Games business, it's what we have all strived for as we put the Gaming Center of Excellence together a year ago.

Then what we're seeing, obviously, our Boys POS is down a bit, and our Girls POS is up, and Preschool is up even more strongly than Girls.

Great.

And then just on the Games business, you said in the release you shipped the Zynga, particularly the Angry Birds, the Star Wars Angry Birds a little bit early.

Just wondering did that have an impact on your Games business, so in other words, excluding the Zynga would you have seen Games grow or flat Games in the quarter?

Well, you know, we shipped a bit of, we're just sort of highlighting the fact that November 9 we're launching Angry Birds Star Wars and we ship a bit of inventory in the quarter, we did for several of our new initiatives.

That's not special related to the fourth quarter activity.

I'm not going to start a slice and dice by every product category.

I think overall everyone should be heartened to the idea that Games was flat in the quarter.

We've said all along that we believe we would stabilize Games this year, that's consistent with our broad guidance we provided.

I feel very good about the number of new initiatives we have in the Games category this fourth quarter.

I think the team has done a phenomenal job both in Hasbro owned brands as well as great partner brands.

We also shipped Zynga brands in the quarter.

We have some launches going on around Words with Friends, and you'll see Cityville and Farmville as well, so lots of new games product out there and you'll start to see a lot of the displays coming to retail and great retailer support for our new Games initiatives across-the-board, so overall I would say we're well positioned for the fourth quarter.

Okay, great and then as you gave us the nice presentation, you gave some color there in terms of how you were thinking about the rest of the year.

In terms of revenues, just wanted to double check are you still guiding to a 2 to 4 point revenue shift, because if that is the case that implies a mid teens revenue growth in the fourth quarter so I just wanted to check that.

What I'd ask you to look at is if you look at the year, obviously we do continue to expect our year to come later with fourth quarter being bigger than thirds in terms of revenue and EPS.

If you look at the US and Canada segment it continues to be on track for greater revenue percentages in the second half.

I would get you to look at a 2% to 4% growth range versus last year's revenue split which was 63% in the second half, and we had that in our 10K in the second quarter which is, I would compare it to year ago revenue.

So low end of the range of 2% to 4% growth versus last year's revenue.

Okay, final question.

If you could just elaborate, you touched on a little bit in the prepared remarks, I think Deb did.

You've been reducing your program production spend over the past several quarters, Deb said it was due to efficiencies.

Can you just elaborate more on that?

Actually what we're seeing is the amortization has come down because the ultimate revenue expectation has gone up, is one big driver of that.

So as we look at our ultimate revenue expectation for our programming, because of the performance we've had on television, because of our digital distribution performance, and the revenues now we expect to get from that programming across merchandising as well as program sales, the amortization comes down.

Right, but you both have been reducing your program production cash spend?

Oh, yes and the cash spend really has to do with when you have successful TV series.

In fact Hasbro Studios TV shows outperform other TV shows on the Hub by 74% in ratings, we're 4 of the top 10 shows on the network right now, so as you look at great performance of TV shows you're able to produce fewer episodes in subsequent series than you needed to produce in the earlier series.

You know kids love watching episodes over and over again, but you have to add an element of newness, but you don't need to spend to produce the entire new series again.

You can add 13 episodes or 26 episodes to a pool of 52 already produced episodes, so therefore you're able to with successful TV series, produce fewer in out years.

Okay, you're obviously not thinking about the parents who have to watch with the kids.

Well, but I think it's also important to note, so that there's no concern, overall the Hasbro Studio has green light over 800 half hours of programming, and we still have several hundred half hours of programming that we're currently producing for the network for new shows, so it's not that we're not producing.

We're just both producing more efficiently and also looking at where there are successful TV series, we obviously then spend less per new series because we're able to produce fewer shows.

Okay, great.

Thank you so much.

Sean McGowan, Needham & Company.

I also have a couple questions.

Good morning.

Wanted to know to what extent we should be expecting some of the expenses that were lower in the third quarter than perhaps the relationships might suggest.

How much of that has shifted to the fourth quarter?

You mentioned advertising, but should we expect to see some other expenses?

Yes, actually advertising, I'd just remind you I think we've talked about this prior.

Advertising is actually rate sheeted so that's how we're able to know that it's 10% to 11% for the full year, so we rate sheet that throughout the year and so therefore, it would not spike in the fourth quarter.

That's how we calculate that, Sean.

Okay, but obviously like the SD&A?

We've been working on reducing expenses programmatically around the world and so you'll see continued reduction in certain expenses.

Deb I don't know if there's other areas?

Right, and one of the things I think you may be referring to, Sean, is we did talk about in our prepared remarks about lower expenses in the third quarter of 2011 that had to do with some duty issues outside of the US, and that we expect those to normalize over the course of the year.

Okay, couple of other questions.

I'm confused by what you mean, Brian, when you say new initiatives in Games are up double digits versus last year.

If they're new initiatives what are you comparing that against last year?

Obviously over the last four weeks, we have sales data, we look at our new game sales a year ago.

Obviously we have several new initiatives this year and far more this year than year ago, but also we're looking at the quality of performance of those new Games initiatives, and just early indicator as we look at getting into the holiday season how Games are performing versus a year ago.

So you mean stuff that's new this year compared to stuff that was new last year?

Correct, exactly.

So we're just trying to get a sense because obviously throughout the year Games POS has been down not nearly as much as overall inventories that were down nearly 40%.

Right.

So as we look at new initiatives, what do we see on the horizon, and what we're seeing is a greater impact from new Games initiatives and across an array of new games.

Okay, and to circle back to a question that's been touched on before but I just want to be clear.

So when you say Games stabilized in 2012, do you mean ending the year flattish or kind of the way it was in the fourth quarter or flat for the year so that the increase in the fourth quarter would offset the decreases so far this year?

We were always talking about the full year numbers.

We're really looking at it on an annual basis making great progress in Games and stabilization was a full year concept.

Okay.

The idea of being stable, and the reason I've been using that term is it's plus or minus a couple percentage points.

Well I knew that's what you meant in February.

I just wanted to know if that was still what we meant today.

Exactly.

We mean the same thing today that we meant then.

Okay.

And last November.

Indeed.

And then last question, do you think that the degree to which the shipments in Furby, what seemed quite strong in the third quarter, do you expect to get significant reorders on Furby in the fourth quarter?

Well, we have also seen great sales of Furby thus far, and Furby will go out to English-speaking countries this year, and then rolls out around the world in several different languages and across many different countries next year.

So it's certainly some shipments in the third quarter that we've seen in Furby, but also some good sell-through early days.

But obviously with a lot of the layaway programs Furby is on the wish list of a lot of kids, and also retailers, and so we are seeing great early momentum in Furby.

Okay, thank you.

Eric Handler, MKM Partners.

Yes, thanks for taking my question.

Digging just a little bit more on the Boys side can you talk a little bit about Nerf?

Has that product, was last year sort of the, actually two years ago I believe was the peak, what's going on with that segment and how do you look for that to sort of regain its growth trend?

Yes, overall, we entered the year, particularly in the US with too much Nerf inventory which we talked about earlier in the year.

The new line of product is the Nerf Elite line which is off to a great start and over time would become more of the line.

You also have more new innovation that comes to the floor between the Fire Vision as well as the Nerf Elite.

That begins to rollout around the world.

So we feel very good about our Nerf business longer term, and certainly last year, I believe we reported $414 million in revenue.

We then entered the US, the new year with too much inventory, and so we'll work through that inventory, but overall, we feel good about our Nerf business.

Okay, thank you.

Drew Crum, Stifel Nicolaus.

Okay thanks, good morning everyone.

Deb I wonder if you could reconcile the difference in terms of operating profit and performance between the US and Canadian business and International.

I think you mentioned that you had some lower expenses in the comp for International, but is there anything else you can share there?

Really, it was lower expenses in the comp a year ago in the International segment versus this year, so it's the timing of certain expenses, as well as the impact of foreign exchange in the International segment as well.

I think we had about $8 million worth of a negative impact from foreign exchange that hurt operating profit in the International segment this year versus a year ago.

Okay, and maybe Brian I can ask the revenue question for Q4 a little bit differently.

I think in your prepared remarks you suggested that you're expecting revenues to be greater than the third quarter.

Is that against the reported number of $1.345 billion or is that against the number excluding foreign currency?

Well, I would look at the as reported number.

Okay.

And again, just to make sure we're all clear, as we look at, we're looking at a 2% to 4% increase on Hasbro Inc's revenues coming in the second half and I would use the comparative now as we get closer to the year we can see it's a year ago is the best comparator.

Okay, fair enough.

And then last question, can you comment on how you're tracking the guidance around the $150 million of incremental revenue from the Hub?

Yes, we're right on track.

In fact we're probably a bit ahead.

Okay, thanks guys.

Michael Kelter, Goldman Sachs.

Yes, just I guess first off taking a step back, your organic revenue growth has averaged about 2% a year over the last five years now, and that's below the standing guidance of 5% a year.

My question is, is there a reason you expect your revenue growth to accelerate to meet that guidance in the future despite what we're seeing in industry trends, or might you revisit that part of your guidance to reflect lower growth at some point?

Actually, Michael, the industry trend if you look at Euro Monitor has projections for the industry growth across all regions from 2011 through 2015 to be 4% on an annual growth rate, so our expectation of 5% over the medium term is completely in line with external reporting and forecasting.

They are also forecasting good growth on the action figure business consistent with the industry as well as in the Games business.

We certainly are also seeing great expected growth in the Girls category and in Preschool.

So overall we feel that we've had to address certain key issues within our business which we've taken on, the Games business and the US business.

Over time, obviously, we feel that we can grow consistent with the industry projections, and probably pick up some market share in certain key geographies, so as we look forward, we feel good about the innovation in our product line.

We've had some issues that we've had to address and I think you see we're turning the corner and we're on the path to delivering on our objectives we set for 2012 and then achieving our medium term objectives.

And action figures which you brought up, that's actually one I was curious about, because I think we all kind of understand why the Games data is what it is and the consumer behavior changes being what they might be, but action figures as a category down double digits this year, and it's an important category for you.

What are your thoughts as to what's going on because the magnitude of those declines are surprising.

If you look over time, actually you look over about a 10 year period, the action figure business is actually one of the most inelastic, meaning kind of consistent demand categories and then is driven up or down depending on the new entertainment initiatives or innovation in that category.

So clearly we are in a year after major movie year, but overall we feel that between the television efforts, not only Hasbro brands but a lot of our partners' brands, as well as the new movie efforts that come there, as well as lots of innovations that we see on the horizon.

Frankly as well as expanding the definition of Boys action to new categories including Preschool where PlaySkool Heroes is performing exceedingly well across a number of brands between Transformers and Star Wars and Marvel.

And our Games Boys Action Gaming, which is performing quite well, you know I think it's about the way we look at the consumer centric adoption of Boys action play versus necessarily more of the traditional measurement stick of how Boys action is measured.

And so overall, I would say we're expanding into these new categories of play and getting great response from the kids who are playing with our toys.

And then two quick clarification questions.

The first one, ad spending, you guys are guiding 10% to 11% of sales for the year.

Given the 30% to 40% increase in the US for the fourth quarter that you alluded to, might that line item be above the 10% to 11% range for the fourth quarter?

No, our forecast is that it would be between the 10% and 11% range.

And the right reason for that, as I mentioned, is that the way we accrue our account for advertising, it gets rate sheeted throughout the year.

So we already know what we're forecasting to spend and it's 30% to 40% more in terms of dollars versus a year ago.

And that has to do with reorienting our business to the consumer and to the retailer to be in the market when consumers are out there.

We talked in prior quarters about how we were disappointed in the amount of marketing spend we were able to put against the consumer in the most important time periods of the year, so we've rectified those issues and then some.

The team has done a great job of not only looking at traditional media but also digital and social media, and you'll see our brands showing up in all those places.

Everywhere consumers are interacting with brands.

My other clarification question was the other end of that.

If more money is going into advertising and less from trade as you've talked about, how much did the reduction in trade dollars aid your revenue growth in the current quarter?

I don't think it did.

I don't think it had any impact.

It's not trade spend at retail.

What we've been talking about is flow allowances or warehousing allowances where inventory is going into warehouses or into retailers in advance of the demand.

Typically in the first half of the year.

Got it.

Thank you very much.

Jaime Katz, Morningstar.

Good morning.

Thanks for taking my question.

My first question is on the Preschool category and whether it was down partially from timing, or if you guys are seeing any share shifts in the category.

And then I know that your nearest competitor has done a pretty decent push on the TV media aspect for their Preschool category.

Are you guys doing anything like that?

And can you maybe talk a little bit more about the media push that you guys are doing and how you're allocating those dollars?

Well, in fact, if you look both year-to-date as well as in Q3 our PlaySkool business is up, as is our Play-Doh business, as is our PlaySkool Heroes business.

What we're really looking at, to your point, is timing.

It has to do a lot with the timing of Sesame Street's launch a year ago versus this year and what we were doing in the third quarter a year ago to set ourselves up.

Remember that was the first quarter where we had the new Sesame Street license so we were out at retail really developing that brand and putting it out at retail for the first time for Hasbro.

And so, as we look at trends between the POS trend year-to-date, which is up, as well as in the quarter, as well as the actual sales across a number of initiatives, and new initiatives like PlaySkool Heroes, as well as our new Koosh brand for Preschoolers, we feel very good about our prospects in the Preschool business.

And then the media part of it?

Can you talk about how you're spending those dollars?

Yes, so overall our media spend is up in the US and for the fourth quarter.

And a lot of those media dollars will certainly go toward Preschool categories, so we're spending a healthy amount of media.

We won't break out media by category, but as we've talked overall for the fourth quarter in the US, media spend will be up 30% to 40% versus a year ago.

And certainly given the momentum we have in a lot of our Preschool categories we would expect to spend more there.

Thank you.

Tim Conder, Wells Fargo.

Thank you.

Just a couple of clarifications to begin with.

Number one, Transformers and Beyblade, I think you said that Beyblade was performing better than expectations as far as if you want to call it the year-over-year burn down, and Transformers was in line with expectations, just to make sure that we got that correct?

And then also, on the channel inventories and action figures, can you talk to us as to where those are collectively and then your POS how that's trending as we're seeing it here, especially as the third quarter wrapped up.

Yes, Beyblade overall is tracking above the typical burn down rate if you will, using your terminology, year after a phenomenal year, and Transformers is sort of on trend with what one would expect.

We think that as Transformers Prime the TV series kicks in around the world we should perform well in Transformers as we move forward, and feel good about the new innovations in the brand there.

David, do you want to talk about--

Yes, I think we said over what our inventories were down about 22% at retail, which was 15.9% in Games or about 16% in Games and 39% or 40% in Games and Puzzles, sorry, 15% to 16% in toy and about 38% to 39% in Games and Puzzles.

So if you dig into the toy number a bit more you're finding that the retail inventory on Boys is probably down about 30%, which is consistent with the fact that we had the really big numbers on Transformers and Beyblade last year.

And then it's actually up in Girls, which is again, where we've got a lot of momentum this year as we ship in sort of things like Furby and One Direction and the new Fur Real and Pony items.

Okay, and then just any comment how the POS in the action figures sort of wrapped up the quarter?

Yes, overall, you know, the Boys action figure POS was down for the quarter, but not down as much as inventory.

And overall again, it belies the fact at how well Marvel is really performing, we feel great about the Marvel business, we're just up against big comps there.

The other thing that was true if you remember in 2011, as we all talked about it, we shipped a lot early on in Transformers, and the business didn't performance well as what we probably wanted later in the year, so proportionately more revenues went in earlier in the year.

Conversely, this year we have an opportunity, because we have great performing movies in the Marvel movies, and great opportunity with the DVDs out in this fourth quarter and the holiday to ship revenues.

Okay, and then one last question as it relates to the North American improvement in operating profits for the year.

I think you talked about with better mix but also lower cost.

Was there anything in the fourth quarter in particular last year as it related to North American division that you'll be lapping and that will help, or something else incremental, again that you've done and put in place in the North American segment that will help in the fourth quarter?

You know, in reorganizing our business late last year or early this year, we certainly are running the business differently than we have in years past and we've talked about getting the US business back to historical levels of operating profit.

So the cost structure, the way we go to market, and our approach should enable us to create sustainable higher levels of operating profit margin than year ago.

Okay, great.

Thank you.

James Hardeman, Longbow Research.

Thanks for taking my question.

This is actually Phil Anderson standing in for James.

Just looking at the SD&A line, you guys are still guiding 20% for the year, given what you've reported in the three quarters so far, that maybe looks a little bit high.

Just wondering if there's anything sort of one off in fourth quarter that would cause that number to be up, and if you could kind of just explain your updated thinking around the SD&A number?

Sure, Phil.

Thanks for the question.

Just to remind you last year in the fourth quarter we had an adjustment of about $30 million that hit in large part the SD&A line related to compensation adjustments, so as we sit and plan for this year, we would expect the compensation levels to be at 100% until we knew otherwise.

Okay, fair enough.

And then finally just with all these new games you guys are introducing, it certainly sounds like those are off to a good start here.

Just wondering, you know, is there any risk that the growth of those new games comes with you having such a large market share in that Game segment, sort of some cannibalization there occurring as those brands go.

Well actually what we've seen is both year-to-date and in the third quarter, our digital gaming revenues have grown, we have more digital games being created on top of new Games initiative.

So we've talked about in prior years where we have innovation in our basic game business and digital games that come that we don't see cannibalization, we actually see growth, the opportunity for people to try new games in all kinds of different formats and play those games differently in different formats.

We think that a game like Words with Friends that on the face of it could be similar to other games is great because for the first time we're adding elements to that game that's never existed before, the ability to play multi-player, meaning four player.

If you've ever played Words with Friends on your Smartphone, you know you can only play with one other person, so we're adding this whole new benefit of being able to play with four people which would also be added to the online gaming experience.

So we're really building a great ecosystem of online great game play, plus offline in many cases, and in other cases just great fun, off the board gaming experiences like Twister with Twister Dance, which is off to a great start, or Laser Tag that uses your iPhone or iPod to create augmented reality as you play a much more enhanced Laser Tag game.

So we don't really see cannibalization as an issue.

We've talked about the fact that some of our traditional, call it one SKU Games business will continue the tale of the business to continue to decline over time, but that we have a lot of new gaming initiatives that are really innovative that are connected to digital that should enable us to stabilize the business this year and grow over time.

Okay, very good, thank you.

Greg Badishkanian, Citigroup.

Great, thanks.

You spoke about your movie line up for next year.

Just wondering how does that compare with this year's line up with Avengers and Spiderman, and do you think there will be any fatigue impact on Iron Man, or Thor toy sales given you had Iron Man and then you had both of those over the last two years?

Yes, looking at the Boys business and as we look forward, the great part about 2013 is a number of known brands.

And why I say that is, both from an audience standpoint, as well as from a retailer standpoint globally, known brands are extremely helpful because retailers know exactly how to plan those and they know where the added excitement comes, from new stories being told around those brands, new innovations that are coming from Hasbro and our partners around several of those brands.

So we're very excited about the number of Marvel movies that come into theatres next year, equally having two Star Wars movies next year where people really understand what Star Wars is all about, and the fact that they come during more of the height of seasonality in September and October should be quite good for us.

We kickoff the year with GI Joe, so overall, lots of known brands that are very beneficial with new stories for both global audiences as well as global retailers.

Do you think it will be equal to this year or less?

I'm not going to guide anywhere right now.

I just would tell you that between the motion picture support and the number of new TV series that we have coming from Marvel Studios and Hulk support, Avengers support, Spiderman support, as well as our own brands and Transformers and Kai Judo, and as we look at all of that in the Boys action business we feel very good about both the TV efforts, as well as movie efforts and the innovation in the category.

Okay, and then just finally, as you talk to your retail customers, over the last few months, has anything changed in terms of how they're approaching holiday this year in terms of whether their buying patterns or their expectations for overall toy sales in the fourth quarter?

Well clearly, their buying patterns are later and we recognized that last November when we first sort of said that our year was going to come later, and we were going to work with our retailers to deliver more in line with consumer demand, particularly in the US, so we sort of foresaw that, and it certainly is happening.

I think in terms of as we look at their expectations for retail, I think they're looking forward to a good year, certainly consumer demand has held up pretty well, and I think in September, retail sales did a little bit better than people were expecting, so I think they are sort of cautiously optimistic and they are just buying later.

The fact that our inventory at retail is down sort of 22% at this time sort of confirms that.

Thank you very much.

Gerrick Johnson, BMO Capital Markets.

Good morning.

Deb, we kind of blew past the gross margin discussion.

Can we talk about perhaps moving components and moving parts there, price, cost savings, input costs, et cetera?

Sure, good morning, Gerrick.

As we talked about earlier this year we did implement a price increase, mid single digits, globally on carryover products.

So that's held and as we've also talked about we price, we lock in our prices about 12 to 18 months in advance, so while commodities have continued to move around a bit in the quarter, going up and then coming down and going up again most recently, we're pretty much insulated from that because of when we lock in our costs with our vendors, and our pricing has held.

From a gross margin standpoint, our gross margin, if you go back historically in the third quarter, is typically our lower quarter, from a gross margin standpoint, but there was really nothing unusual.

As a matter of fact, it was 56.4% in both years and to the 0.1% difference was only because currency rates were so high last year, and we had some favorability in MPV, but it really wasn't meaningful.

And overall for the full year, we continue to expect our gross margin to be at the 58% something range.

Okay, thank you, and Games.

I was hoping you could perhaps break out performance within Games.

Wizards of the Coast perhaps, board games and then the Boys action segment, which I guess would be incremental, but how did board games specifically perform year over year in shipments, as well as Wizards of the Coast year over year?

Thank you.

Well, we have to look by brand.

I think overall in the quarter, a brand like the new Monopoly coming out and getting off to a really good start, the Monopoly Millionaires, Battleship as kind of a classic board game is up significantly, certainly you're right, action battling is -- that whole category has been up for us.

We've talked about the fact that the tale of the board game business, the one off single SKU games, will continue to come down over some time and it will be replaced by new innovations like Twister, new innovations in Monopoly and Laser Tag, certainly Battleship's performance, action battling and then some new initiatives that come in the fourth quarter.

So really, reinventing what it means to be a board game and also adding to that, the Wizards of the Coast business, which has performed very well throughout the year, that's both Magic The Gathering and Duel Masters, and then the launch of Kai Judo, you know we're very positive on.

It's early days and we'll roll that out around the world.

Okay, thanks.

I think I'll sneak in one more.

In the Boys segment, it appears that role play is doing really well, much better than action figures.

Brian, what do you think explains why we go in and we look at Avengers and we see the shields and hammers gone but the action figures still kind of there?

I think that clearly, we're probably just replenishing the action figure business better than the shields and the role play business so we should probably get on that.

We, for the holiday season, you know, feel like we have performance that's coming in both places and certainly, the role play business for many, many years back to the light saber business has always been a classic play pattern within Boys action.

I think we've really struck a nerve with Boys and the shields and the Hulk hands in so many areas, including the web shooter, and we have a lot of new innovation in role play as well as action figures for the holidays.

Okay, thank you.

Thanks.

Thank you.

There are no further questions at this time.

I'd like to turn the floor back over to Ms. Hancock for closing comments.

Thank you, Rob.

Thank you to everyone for joining the call today.

The replay will be available on our website in approximately two hours.

Additionally, Management's prepared remarks will be posted on our website following this call.

We look forward to speaking with you in the coming months, thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.