Hasbro (HAS)

There is no question that Hasbro has benefited tremendously from its movie titles Transformers, Iron Man, and G.I. Joe. However, these benefits only come when these movies are released, which can take years to make. In the summer of 2009, the releases of Transformers 2 and G.I. Joe helped the company's sales. However, the the success of these movies didn't carry over to 2010 as sequels to these movies were not released. As a result, the company's Q2 2010 revenue fell 7% compared to the same period in 2009, an example of short term fluctuations in revenue. Additionally, increasing dependence on the movies also creates long-term risk. When a movie series reaches its end or loses popularity, it will be up to the company to make up the lost revenue, something that is no easy feat.

For the first six months of 2009, U.S. toy sales fell 2% from $7.95 billion a year ago to $7.81 billion. This can be attributed to the economic downturn and national increase in unemployment. Analysts are predicting that holiday sales will be flat, if not negative.

Hasbro's licensing agreement with Marvel is expensive, guaranteeing Marvel a minimum of $205 million over 5 years, regardless of toy sales. Weaker than expected sales of Marvel products or continued delays of movie release dates will delay expected revenue from the deal.

Hasbro announced that 2010 holiday sales were weaker than expected as the demand for toys dropped at the end of the holiday season. Additionally, Target (TGT) said that toy sales were weak in December. As a result, Hasbro lowered its Q4 revenue and earnings -- the company expects to report $1.3 billion in sales, compared to $1.4 billion a year earlier.

Although Hasbro expects its 2011 earnings to rise, weak holiday sales in 2010 is not good news for the company's overall growth. As store inventories build up, the company faces stagnating share prices at least in the first part of 2011.

HAS stock prices already anticipate strong sales of Spider-Man and Transformers products in advance of summer movie releases. Stronger than expected ticket sales for the Ghost Rider film did not translate into higher toy sales, and there's a good possibility that the Transformers movie will enhance sales of movie-related toys at the expense of existing product lines, with little or no net increase in Transformers sales.