We reiterate our long-term Neutral recommendation on world's
leading toy manufacturer,
), despite its poor second-quarter 2013 performance as we believe
it has sound long-term fundamentals and potential for growth in
Why the Reiteration?
Mattel posted dismal second-quarter 2013 results wherein both
earnings per share and revenues missed the Zacks Consensus
Estimate. Mattel's second-quarter 2013 adjusted earnings of 21
cents per share declined 25% year over year and also lagged the
Zacks Consensus Estimate of 32 cents by 34.4%. Sluggish sales
growth and higher overhead expenses pressurized earnings during
While net sales nudged up only 0.9% year over year to $1.17
billion, it missed the Zacks Consensus Estimate of $1.21 billion
by 3.3%. Despite a healthy show by The American Girl and Monster
High brands, persistent sluggishness in Mattel's powerhouse
brand, Barbie, and dismal performance by Fisher-Price brands led
to weak quarterly results.
Moreover, the difficult consumer spending environment
continues to affect toy manufacturers, like Mattel. The Euro-zone
debt crisis further added to the woes.
Despite these aforementioned concerns, we believe the Zacks
Rank #3 (Hold) comapny with its strong product line-up and
attractive product associations with entertainment companies
remains well positioned for future growth. It is considered as
the market leader in the doll category, one of the fastest
growing segments in the U.S. toy market.
Mattel's growing Girls category, which accounts for 40% of the
company's total revenue, has been exhibiting solid growth
momentum for the past fifteen quarters. We believe the segment's
diversified products should bode well for the company's
Moreover, Mattel has a strong exposure in the international
market, especially in Latin America, Eastern Europe and Asia. In
the past nine out of 10 quarters, Mattel has registered positive
revenue growth internationally. In the long term, management
expects to derive 60% of its sales from the international
On the profitability front, Mattel is consistently saving
costs under the 2008 Global Cost Leadership Program. Under the
program's second cost-savings campaign - Operational Excellence
(OE) 2.0 - Mattel recorded cumulative cost savings of $187
million by the end of 2012, exceeding the original target of $150
million. The company has also started a third cost-savings
campaign - OE 3.0 - to deliver $50 million in gross savings in
2013. We expect the cost controlling measures to boost the
company's bottom line, going ahead.
Other Stocks to Consider
Some other companies that are currently doing well include
MTR Gaming Group, Inc.
Activision Blizzard, Inc.
Take-Two Interactive Software Inc.
). While MTR Gaming and Activision Blizzard carry a Zacks Rank #1
(Strong Buy), Take-Two Interactive carries a Zacks Rank #2
ACTIVISION BLZD (ATVI): Free Stock Analysis
MATTEL INC (MAT): Free Stock Analysis Report
MTR GAMING GRP (MNTG): Get Free Report
TAKE-TWO INTER (TTWO): Free Stock Analysis
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