Hasbro Inc. stock plummeted 16.8% in Tuesday trading, the biggest decline since December 2000, after earnings that missed expectations due to the impact of President Trump’s tariffs on imports from China.
Hasbro HAS, -0.62% reported earnings per share of $1.84, missing the FactSet consensus for $2.21, and revenue of $1.58 billion that were below FactSet’s guidance for $1.72 billion.
In a statement, Chief Financial Officer Deborah Thomas said a “dynamic trade environment” was having an impact. Chief Executive Brian Goldner elaborated on the earnings call, saying it was “a very choppy environment, where retailer order patterns have changed in response to potential tariffs.”
The result is also dragging down competitor Mattel Inc. MAT, -3.50% , with that stock down 6.6% in Tuesday trading. Mattel is scheduled to report third-quarter earnings on Oct. 29.
Read: China casts long shadow over stocks as earnings season opens this week
“In the third quarter, the threat of and implementation of tariffs in certain instances impacted our shipments and our ability to fully meet demand,” Goldner said, according to a FactSet transcript. “Importantly, during Q3 alone, we saw multiple different dates for the enactment of List 4 tariffs come and be delayed, now scheduled for Dec. 15. And yet, the prospect had our retailers cancel major direct import program orders and rewrite many of those orders as domestic shipments.”
As a result, orders shifted in timing. Some weren’t rearranged within the quarter.
Hasbro was also under pressure to meet deadlines imposed by important launches, like Star Wars Triple Force Friday, “Frozen II” and Nerf Ultra. Hasbro names include Monopoly, My Little Pony and Power Rangers.
“To meet demand, we added air freight and shifted warehousing at an incremental expense to ensure shelves were stocked as the promotion builds for these initiatives,” Goldner said.
Goldner sounded an optimistic note, saying that the goal of sourcing 50% for the U.S. out of China by year-end 2020 is on track, there are new product lines coming, and there’s “strong consumer demand” for the merchandise to support the aforementioned launches.
However, he still had a word of caution about the coming Dec. 15 tariffs.
“[T]he planned Dec. 15 tariffs will curtail direct import shipments by retailers, as they want product arriving on or after the 15 to be imported by Hasbro, and demand fulfilled in the U.S.,” Goldner said. “The team is working on programs to help mitigate this impact, as well as the impact on our consumers this holiday season, but we anticipate continued potential disruption in the fourth quarter.”
Stifel analysts didn’t expect the tariff pain to be so great.
“While aware of the potential for some impact from tariffs, if this alone was the cause of the shortfall, we severely underestimated the magnitude of the detriment,” analysts said.
Stifel rates Hasbro stock hold with a $111 price target.
UBS analysts say the results also impact the acquisition of Entertainment One, a $4 billion deal announced in August that is expected to close during the fourth quarter.
“Given softer results, the eOne acquisition is more dilutive than when the deal was announced,” UBS said. “Fundamentally, underlying revenue for the quarter is a key question given the industry dynamic of sales pull-forward to navigate tariffs.”
UBS rate Hasbro stock neutral with a $117 price target.
Hasbro stock has rallied 22.3% for the year to date, outpacing the S&P 500 index SPX, +0.28% , which is up almost 20% for the period.