Mattel's First Quarter Earnings Are No Fun and Games


Monday saw toy giant Mattel's (NYSE: MAT ) 1Q earnings drop 53%. This fall is partly thanks to expenses from the company's acquisition of HIT entertainment, though that cannot take all of the blame. The legendary Barbie and Hot Wheels brands have also suffered a drop in sales.

CEO Bryan G. Stockton said that the quarter offered no surprises, and that the losses were offset by strong growth internationally and with American Girl. He added that, "we have work to do in certain areas across our portfolio of brands, countries and customers as we prepare to successfully execute the all-important holiday season."

Mattel remains the largest toymaker in the world by revenue, and recent quarters have seen earnings rise. Sales of Barbie and Hot Wheels have played a large part in that. MAT acquired HIT Entertainment in February in a $680 million deal, which should boost the pre-school market thanks to brands like Thomas the Tank Engine.

However, rising costs saw Mattel raise prices at the start of 2012. The uncertainty has been fuelled by volatile crude oil prices and packaging expenses, plus the rising cost of labor in China's manufacturing hubs.

Mattel's profit has been reported as $7.8 million, or 2 cents per share, down from $16.6 million, or 5 cents per share, the previous year. To be fair though, the current quarter includes acquisition-related charges of 4 cents per share. The company's revenue fell 2.5% to $928.4 million. That is in contrast to the average analyst estimate, which sat at 7 cents per share on revenue of $989 million.

As mentioned previously, the drop in sales of the top brands, Barbie and Hot Wheels, has hit MAT hard. Gross sales of the boys and girls brands unit fell 4.4% to $622.2 million. Globally, gross sales of Barbie fell 6%. Hot Wheels were down 5%, while Fisher-Price brands sales were pretty much flat.

All of that saw North American gross sales fall 9%, a number slightly offset by a 7% increase in international gross sales.

On Monday, Goldman Sachs released a research report stating that MAT indicated that sales at retail were better than retailer orders, indicating that retail de-stocking drove some of the decline. In addition, MAT indicated that $25-30 mn of the decline was due to lower CARS toy sales vs. last year's movie year.

Goldman added that Gross margins were up 130bp to 51%, ahead of its 49.7% estimate. This was the best gross profit margin for a 1Q for as far back as its model goes as cost saves run through the P&L. SG&A, however, came in higher than it had anticipated ($331 million vs. its $273 million estimate).

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This article appears in: Investing , Stocks

Referenced Stocks: MAT


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