We remain Neutral on leading toy manufacturer
) despite strong third quarter results due to the tough retail
environment which curbs consumer discretionary spending.
On Oct 16, 2013, Mattel reported strong third-quarter 2013
results wherein both earnings and revenues beat the Zacks
.While net sales increased 6.2%, earnings per share grew 11.5%
year over year. An increase in international as well as domestic
sales, along with margin expansion led to the earnings growth.
Apart from the consistently strong performances by The American
Girl and Monster High brands, the turnaround of Barbie - the
company's powerhouse brand - in the third quarter was
Overall, we remain encouraged by Mattel's strong product
line-up, which includes core brands, licensed brands and
lucrative product associations.Mattel's Girls category,
accounting for nearly 40% of the company's total revenue, has
been exhibiting solid growth momentum for the past 16
We believe the segment's diversified products should bode well
for the company's business. Fisher-Price Brands, once a weak
link, showed some traction third-quarter 2013 and is expected to
sustain the momentum through several product launches in the
The Zacks Rank #3 (Hold) company's international business is
growing at a rapid pace especially in Latin America, Eastern
Europe and Asia. In the long term, management expects to derive
60% of its sales from the international business.
On the profitability front, Mattel is consistently saving
costs under the 2008 Global Cost Leadership Program. Mattel
recorded cumulative sustainable cost savings of $187 million by
the end of 2012 in its second cost-savings campaign --
Operational Excellence (OE) 2.0 -- exceeding the original target
of $150 million. The company has also started a third
cost-savings campaign -- Operational Excellence (OE) 3.0 -- to
deliver $50 million in gross savings in 2013. Year-to-date,
Mattel has recorded $34 million in cost savings. We expect the
cost controlling measures to boost the company's bottom line,
Despite such positives, we remained concerned about the
limited consumer spending environment amid sluggish economic
growth in the U.S. The Euro-zone debt crisis also added to the
Moreover, toy manufacturers have been highly affected by the
age "compression" which is causing children to grow up faster. In
addition, these companies are facing stiff competition from the
manufacturers of a broad array of alternative modes of
entertainment including video games, MP3 players, tablets,
smartphones and other electronic devices.
Other Stocks to Consider
Investors interested in the toy industry may consider stocks
Glu Mobile, Inc.
JAKKS Pacific, Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
ACTIVISION BLZD (ATVI): Free Stock Analysis
GLU MOBILE INC (GLUU): Free Stock Analysis
JAKKS PACIFIC (JAKK): Free Stock Analysis
MATTEL INC (MAT): Free Stock Analysis Report
To read this article on Zacks.com click here.