Hasbro hints at 'Transformers' sequel

No. 2 toymaker posts higher profits and sales, excluding items, boosted by Transformers movie-related toys; says 'Transformers' sequel is 'possible.'

By Parija B. Kavilanz, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Hasbro reported Monday higher profits and sales, excluding items, that were revved up by sales of its "Transformers" movie-related toys and the toymaker suggested that a sequel could be in the works.

"'Transformers' has been a unique box office success. Our U.S. retail sales of [the new] Transformers toys have exceeded our expectations with 3 million units sold since the launch," Hasbro CEO Alfred Verrecchia said during a conference call with analysts to discuss the company's results.

Hasbro's "Transfomers" movie-related toys boosted the toymaker's profits and sales in the second quarter.

"It's too soon to say if there's a 'Transformers 2.' No date has been set as yet, but a second movie is possible," Verrecchia said.

The call was monitored via Webcast in New York.

The DreamWorks/Paramount live-action movie based on Hasbro's Transformers franchise of action figures hit theaters July 3.

Since then, the movie has grossed more than $400 million in global box office sales, making it one of the top performing summer blockbusters of 2007, according to Boxofficemojo.com.

Hasbro is planning to unveil Transformers-themed clothes, bedding and other merchandise for the 2007 back-to-school season.

Although Hasbro owns the "Transformers" brand, the toymaker did not finance the movie and, as such, won't pocket a percentage of the gross sales. The company's revenues from the movie are tied only to product sales.

But that could change, Verrecchia said. "If the movie hits certain thresholds, you want to participate in the box office," he said. What's more, he said Hasbro could consider movies based on its other popular brands, including G.I. Joe.

"A number of our brands have a [movie] potential and we are working on several opportunities. Right now we have not financed 'Transformers,' but that could change in the future," Verrecchia said. He declined to elaborate.

Sean McGowen, an analyst with Wedbush Morgan Securities, said he's not surprised that Verrecchia is rethinking Hasbro's Hollywood strategy. But it's too early to know if anything will come of it.

"It didn't make sense to me why Hasbro did not want to get a part of the movie's topline for its property," he said. "Given how well 'Transformers' has done, it wouldn't surprise me that Hasbro's management now wants to reconsider that."

At the same time, McGowen said the company probably realized the risks of straying from its core strengths.

"Hasbro's management knows that its investors are investing in its toy business and not in a movie company," McGowen said. What's more, even if Hasbro wants to invest in a possible sequel, "the movie studios may have locked in the right to make a sequel themselves," he said.

"So there's a pretty good chance that any sequel would be made under the same terms as 'Transformers,'" McGowen said, meaning it would exclude financing from Hasbro.

For its second-quarter, Hasbro, the No. toymaker after Mattel (Charts, Fortune 500), posted net earnings of $4.8 million, or 3 cents a share, down $27.1 million, or 7 cents a share, a year earlier.

But excluding a charge of $36.5 million related to Hasbro completing its buyback of stock options given to Lucasfilms for its "Star Wars" license, the company posted better-than-expected profits of 24 cents a share.

Revenue jumped 31 percent to $691.4 million. Analysts, on average, had expected Hasbro to post profits of 18 cents a share on sales of $648 million, according to Thomson Financial.

Besides "Transformers," Hasbro said strong demand for movie-related toys tied to "Spider-Man 3" as well as for its core brands that included "Littlest Pet Shop," "Nerf," PlaySkool toys and Baby Alive dolls drove its North American segment sales up 24 percent to $449.4 million.

Its international sales grew an even better 49 percent to $227.6 million.

Sales at its games division, however were not as impressive growing 3 percent year-over-year. "It was about as expected," Verrecchia said.

For Mattel, Hasbro, Jakks Pacific (Charts) and other toymakers, the real battle for business occurs during the second half of the year, which includes the critical holiday shopping period that's typically responsible for as much as 90 percent of the industry's annual profits and sales.

Looking ahead, Verrecchia said he was hoping the fall DVD releases for both "Transformers" and "Spider-Man 3" to reignite sales for products tied to those movies in the all-important fourth quarter.

"We had a great first-half of the year and we do expect to grow business in the second-half but not at the levels that we did in the first and second quarters," Verrecchia said during the call. Top of page