Image: Hasbro's Transformer
Mark Lennihan  /  AP
Transformers, like the one shown here, and Spider-Man toys helped boost Hasbro's bottom line.
updated 10/22/2007 1:24:50 PM ET 2007-10-22T17:24:50

Hasbro, Inc., world's second-largest toymaker, said Monday its third-quarter profit climbed 62 percent on higher sales led by Transformers and Spider-Man toys and a favorable tax adjustment.

The Pawtucket-based company also said its business has not been hurt by high-profile recalls for lead paint by several other toy companies, including its chief rival, Mattel Inc.

"Our retail sales have been strong all year. They continue to be up double digits, although it has been a soft retail environment during the last month or two," Chief Executive Al Verrecchia said. "We're very optimistic about the fourth quarter."

The results easily beat analysts' expectations for the quarter, and shares grew 3 to $28.44 in morning trading Monday.

Earnings surged to $161.6 million, or 95 cents per share, in the three months ended Sept. 30 compared with $99.6 million, or 58 cents per share, in the year-ago period.

The current period's results included a tax adjustment of $29.6 million, or 17 cents per share. Excluding the adjustment, earnings were $132 million, or 78 cents per share.

Analysts surveyed by Thomson Financial expected a profit of 71 cents per share. The estimates typically exclude one-time items.

Quarterly revenue rose 17 percent to $1.22 billion from $1.04 billion in the prior year. Analysts expected sales of $1.14 billion, according to Thomson.

As expected, sales of the "robots in disguise" toy Transformers were strong in the third quarter, which began as the movie inspired by the brand was released in American theaters. Verrecchia said Hasbro expects demand to continue through the crucial holiday season and into 2008, when an animated TV series is expected to be launched in the spring.

Verrecchia said there was also growth across several of Hasbro's other businesses. The girls' segment grew 33 percent, driven by the Littlest Pet Shop, a line of tiny collectible pet figures. Sales of traditional board games, like Are You Smarter than a 5th Grader? and The Game of Life: Twists & Turns Edition, grew 14 percent.

Overall game sales slowed 2 percent, the company said, partly because of a decline in Hasbro's plug and play games and trading card games like Magic: The Gathering.

Another bright spot was a 33 percent overall increase in international business, to $374 million from $280.4 million a year earlier, said David Hargreaves, the company's chief financial officer. About $21.7 million of that was due to foreign exchange rates, the company said.

Last week, Mattel reported a 1 percent drop in fiscal third-quarter profit due to the impact of charges, costs and supply chain delays related to multiple product recalls.

Analysts have said those recalls and recalls by other toy makers for lead paint and other issues could cause parents to avoid Chinese-made toys or to switch to books, clothes and video games when they do their holiday shopping. Hasbro, like most toy companies, makes most of its toys in China.

"I do think the industry probably has to do some work on repairing its public image," Verrecchia said.

But he added that Hasbro has had stringent testing procedures in place for years and has taken additional steps to make sure it has no problems with lead paint or other safety issues.

"We can assure you," he said, "if there is a problem we will address it quickly, openly and decisively, as we have in the past."

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