Playing for keeps: Hasbro to cut 550 jobs

Rhode Island may wind up with more jobs as the toy maker revamps its strategy to concentrate on its core brands By Nora Lockwood Toother / The Providence (R.I.) Journal Heading

Friday, October 13th 2000, 12:00 am

By: News On 6

Rhode Island may wind up with more jobs as the toy maker revamps its strategy to concentrate on its core brands

By Nora Lockwood Toother / The Providence (R.I.) Journal

Heading into the holiday retail season without a sleighful of hit toys, Hasbro yesterday said it is slashing 5 percent of its work force and consolidating U.S. toy operations at its Pawtucket headquarters.

The number-two toymaker said it will eliminate 500 to 550 positions worldwide, and shut toy operations in Cincinnati, Ohio, and in Napa and San Francisco, Calif.

An unspecified number of jobs will be cut in Rhode Island, as Hasbro streamlines its administrative and marketing operations, company spokesman Wayne Charness said. But he said the Pawtucket headquarters will end up with an overall increase in jobs by year's end because of some transfers from Ohio and California.

Charness said it was too early to determine the exact number of job gains in Hasbro's Rhode Island operation, which employs about 1,200.

The company said it will also eliminate some unprofitable toy licenses and product lines starting next year, and focus more on core brands.

Facing fading Star Wars and Pokemon toy sales, Hasbro said earnings and revenues in the second half of the year would be lower than expected. Third-quarter earnings are scheduled to be released next Thursday.

Hasbro's stock (HAS:NYSE) fell to a 52-week low yesterday, dropping 13 percent. It closed at $10.06 a share, down $1.56 a share.

Last year, Hasbro overhauled its manufacturing, moving most of it to low-cost contractors in Asia, and eliminating 2,200 jobs, or 19 percent of its work force.

Yesterday, in a conference call with Wall Street analysts, Hasbro President and Chief Operating Officer Alfred Verrecchia said the next step is to consolidate product development, sales and marketing and administrative functions, moving most of those duties to Rhode Island.

Hasbro employs about 325 in Cincinnati, and another 200 in Napa and San Francisco. Some of those employees are being offered jobs in Rhode Island, the company said.

Charness said 350 to 400 jobs will be eliminated from the U.S. toy group, and another 150 will be cut from research and development, sales and marketing and administration worldwide.

"There will be some job loss in Rhode Island," he said, "but I think at the end of the process there will be a net gain of jobs in Rhode Island because of transfers from Napa and Cincinnati."

Hasbro Chairman and Chief Executive Officer Alan Hassenfeld told analysts:

- The company's Interactive games division, based in Beverly, Mass., and its U.S. toy business are expected to have substantial losses in the second half of the year.

- The company is "significantly reducing overhead" by closing operations in Ohio and California, as well as moving some toy design and engineering functions to the Far East.

- The company intends to reduce its reliance on movie and entertainment toy licensing deals, and concentrate on its core brands to drive revenue and earnings growth.

"Core brands are our bread and butter," Hassenfeld said. "That's what we need to focus on to reduce risk and enhance shareholder value."

Charness said Hasbro's announcement will not affect the deal it announced last month to produce toys based on future Disney movies. Analysts generally praised that partnership as a steadier way of producing revenue than relying on individual blockbuster movies.

Hasbro's Star Wars toy sales, which reached about $650 million last year but included a lot of inventory that didn't move off retail store shelves, are expected to be "minimal" this year, the company said. Pokemon trading card sales remain strong, but U.S. Pokemon toy sales are down. And Hasbro's Tiger Electronics division, which makes the interactive Poo-Chi and Furby toys, has had delays introducing some new products, Hassenfeld said.

The company said other factors hurting its business include: high oil prices that affect resin and transportation costs; the strength of the U.S. dollar, which makes it harder to sell goods overseas; a lackluster retail environment, and a shortage of some electronic components.

Pre-tax charges for the restructuring will total about $70 million, mostly in the fourth quarter. Hasbro also expects another charge of $70 million to $100 million to cover costs from discontinued and under-performing product lines.

Currently, boys' toys are managed in Cincinnati, while OddzOn, which makes Nerf, Vortex, Koosh and CAP Candy toys, is based in Napa and San Francisco. After the reorganization, boys' toys will be run from Rhode Island, along with Koosh and CAP Candy. The Nerf and Vortex brands are being moved to the company's Larami division in Cherry Hill, N.J.

"Rhode Island will be the hub and spoke of the toy group," Hassenfeld said.

Verrecchia said the company will detail expected losses from its Interactive division next week. The fate of the Beverly, Mass., operation, which employs about 200, is unclear.

Verrecchia said Hasbro is "exploring strategic alternatives for this business. The goal is to stop losses."

The division, which makes games for Nintendo, Sony PlayStation and personal computers, had sales of $229 million last year, and was expected to post about $300 million in sales this year.

Hasbro Interactive's Internet gaming site, Games.com, is slated to go fully online in December.

Margaret Whitfield, an analyst with Tucker Anthony Capital Market, said she expects Hasbro to license its brands and let someone else take over the computer and video game development now done by Hasbro Interactive.

Not counting the charges, Hasbro expects third-quarter earnings of 6 cents to 10 cents a share, and full-year earnings per share of 40 cents to 50 cents.

Analysts polled by First Call/Thomson previously predicted third-quarter earnings of 32 cents a share, and full-year earnings per share of $1.04.

Heading into the important holiday retail season, Hasbro hasn't got much going for it this year, said Bill Jensen, executive editor of Playthings, a toy industry trade magazine.

While Hasbro's Tiger division continues to produce best-selling toys, it is being hurt by a chip shortage that will delay the introduction of four or five new products this year, he said.

One bright spot for Hasbro is its board games, which are big sellers this year, he said.

"If it wasn't for that, they could be in trouble big-time," Jensen said.

Last year, Hasbro sales were boosted by Teletubbies and Star Wars toys, but "those licenses have faded," he said.

Hayley Kissel, a toy industry analyst with Merrill Lynch Global Securities, said if Hasbro sticks to its pledge to focus on core brands, "then they're making the right moves.

"Hasbro's always been reliant on the entertainment licenses," she said. "For as much as they say they're moving away, we've never really seen them do it."

The economics of toy licensing have moved so far in favor of the entertainment studios, Kissel said, "you just don't get a good return."

In contrast, she said, Hasbro's core brands, especially its board games, generate "enormous cash flow."

Hasbro brands include Playskool, Kenner, Tonka, Milton Bradley, Parker Brothers, Galoob, Tiger and Wizards of the Coast.

Hasbro's Reorganization

To boost profits and a sagging stock price, Hasbro yesterday announced a multi-pronged plan that includes:

Closing toy plants in Ohio and California.

Consolidating the U.S. toy group in RI.

Cutting 500 to 550 jobs worldwide.

Refocusing on core businesses.