Star Wars couldn’t save Hasbro from this unforgiving market force

On Monday, theHasbroInc. reported weak sales in Q3.

And shares tumbled by 7.2%.

The toy brand and the analysts who follow it attributed some of the shortfall to disappointing sales of its games and toys for girls.

“If the weakness in girls’ toys is the result of competitive shifts, then there isn’t much to be done,” Oppenheimer & Co Inc. analyst Sean McGowan noted. “Other than heavy promotion or an acquisition, there is not much that Hasbro, or any other toy company, can do to change a product’s performance in the short term.”

However, others pointed to another factor that is plaguing Hasbro: the strong dollar and FX.

We thought the licence for Star Wars would drive EPS higher. In retrospect, FX took a bigger hit in the quarter than expected,” writes BMO Capital Markets’ Gerrick Johnson in a note to clients. “Foreign exchange was a $US132 million headwind in the quarter. Excluding the negative impact of foreign exchange, sales grew +9%. The 9% impact to sales was larger than the 7% impact we had modelled.”

This isn’t an isolated phenomenon. The stronger dollar and its unfavorable foreign exchange (FX) affects have been plaguing numerous multinational US companies for some time now.

Factset china earnings foreign chart
The strong dollar/FX is a big problem for multinational companies. FactSet

Simply put, what happens is the strong dollar makes it more expensive to sell goods outside the US, hurting competitiveness with foreign-made goods.

This poses a big problem for companies that operate globally — and they have been pretty vocal about it.

Earlier this month, FactSet searched the transcripts of the S&P 500 companies that had conducted third quarter earnings conference calls through October 7 to see their greatest concerns.

Most of them cited the strong dollar/FX as having an negative impact on Q3.

Similar to previous quarters, the strong US dollar has been cited by the most companies in the index as a factor that either had a negative impact on earnings or revenues for Q3, or is expected to have a negative impact on earnings and revenues in future quarters,” according to FactSet’s senior earnings analyst John Butters.

“In terms of a year-over-year EPS comparison, a few items of note, and the biggest item of note, FX,” Costco noted during their conference call, according to FactSet. “In Q4 year over year, the foreign currencies where we operate were weaker versus the U.S. dollar, resulting in our reported foreign earnings this year in Q4 being lower by about $US53 million after tax or $US0.12 a share than these earnings would have been had FX exchange rates been flat year over year.”

And, as Yum Brands, which announced that it was splitting in two on Tuesday, noted during its call: “I do want to point out foreign currency translation remains a strong headwind as we continue to expect this to impact full year EPS by about 5 percentage points.”

In sum, the strong dollar headwind that Hasbro is struggling with is something that most mutlinational companies are also struggling with right now.

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