Hasbro transforms to attract movie money

updated 6:03 p.m. ET Oct. 19, 2007

PROVIDENCE, R.I. - Like one of its own Transformer robots, Hasbro Inc. has spent the last few years trying to change itself from simply a toy company to a business that creates the ideas behind movies, TV shows and electronic games.

When the Pawtucket, R.I.-based company reports its third quarter earnings Monday, investors hope to see the early payoff from the strategy. Analysts surveyed by Thomson Financial expect net income to rise nearly 18 percent from this time last year, to $117.5 million, and earnings of 71 cents per share.

Part of what's driving those expectations is the two-decade old Transformers toy line. "Transformers" the movie was released in the United States on July 3, just after the quarter began, and has helped make Transformers products among the most sought-after toys for the upcoming holiday season.

The movie was the first step in what Hasbro hopes to be a long and fruitful relationship with Hollywood: Hasbro supplies the characters and story lines from its toys — household names such as G.I. Joe and Monopoly. Hollywood turns the ideas into big-budget movies or successful TV shows. Then Hasbro reaps the benefits. A Transformers animated TV show is coming in the spring and Hasbro is also planning a Transformers sequel, a G.I. Joe movie and at least one TV game show.

Hasbro, the world's second largest toy maker behind Mattel Inc., has made movie-related toys for years, but it didn't own some of the most popular brands, such as Spider-Man, and had to pay royalties. A few years ago, it struggled with an overreliance on fads, including Furby, and movie-related toys and was forced to cut hundreds of jobs as it lost $144 million.

These days, the company's strategy is to look at the time-tested brands it already owns — Trivial Pursuit, Battleship, Littlest Pet Shop and Mr. Potato Head, for example — and turn those into new products like movies, TV shows, games or online experiences, said Brian Goldner, Hasbro's chief operating officer.

"Our goal is to create that immersive experience that allows consumers to enjoy our brand anywhere — in any format they want — when they want," Goldner said.

Hasbro has had several good quarters and investors responded by driving Hasbro's share price up 56 percent in the last two years, from about $19 per share in mid-October 2005, to a close of $29.25 Thursday.

Still, in a note to investors earlier this month, Gerrick L. Johnson of BMO Capital Markets Corp., cautioned that the entire toy industry could see fallout from a slowing economy and concerns about toy safety. While Hasbro hasn't been involved in the most high-profile toy recalls this year for lead paint, Johnson wrote that sluggish sales could cause retailers to put off buying any more toys in the quarter.

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