Will Cost Saving Initiatives Drive Mattel (MAT) Q3 Earnings?

Shutterstock photo

Mattel, Inc. MAT is scheduled to report third-quarter 2018 financial numbers on Oct 25, after market close. In the last reported quarter, the company's earnings missed the Zacks Consensus Estimate by a margin of 75%. In fact, Mattel witnessed earnings miss in each of the trailing four quarters, with an average negative surprise of 184.1%.

How are Estimates Faring?

Let's look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company prior to the release. For the quarter under review, the Zacks Consensus Estimate is pegged at 16 cents, down by a penny over the past 30 days. This reflects a gain of 77.8% from 9 cents in the year-ago quarter. Revenues are expected to be $1,507 million, down more than 3% year over year.

Toys 'R' Us Liquidation Woes Linger

Like most other U.S. traditional toymakers, Mattel is facing a dearth of consumer demand for quite some time now. Due to the Toys 'R' Us liquidation, Mattel has recorded dismal sales over the past few quarters and trend is likely to continue in third-quarter 2018. Tighter retail inventory management significantly affected Mattel's second-quarter 2018 sales and may continue to hamper revenues in the soon-to-be reported quarter as well.

Despite relying heavily on a growing pipeline of tech-enabled products that capitalize on new play patterns and allow it to extend beyond traditional toys for younger age groups, the company is unable to revive sales.

International sales are also likely to be under pressure in the quarter. The Zacks Consensus Estimate for gross International sales is pegged at $759 million, more than over 3% year over year.

Cost Control Efforts to Drive Earnings

Mattel's bottom line is expected to improve year over year, after witnessing a sharp decline over the past few quarters. Through its current cost savings program, Mattel remains focused on achieving cumulative cost savings, leading to margin expansion. Basically, the company is simplifying organization structure, and optimizing processes and supply chain to generate savings across operations.

Meanwhile, the company's progress in its $650 million Structural Simplification cost savings initiatives and prioritized investments is impressive. Mattel also expects to continue driving solid cost and productivity initiatives to support growth, operate more efficiently and rebuild margins.

Mattel, Inc. Price and Consensus

Mattel, Inc. Price and Consensus | Mattel, Inc. Quote

What Does the Zacks Model Unveil?

Our proven model does not show that Mattel is likely to beat estimates in the third quarter. This is because a stock needs to have both - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Mattel has an Earnings ESP of +13.57% and a Zacks Rank #4 (Sell). 

We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

Here are some stocks from the Consumer Discretionary sector that investors may consider as our model shows that they have the right combination of elements to come up with an earnings beat in the to-be-reported quarter:

SeaWorld Entertainment, Inc. SEAS has an Earnings ESP of +4.05% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

The Walt Disney Company DIS has an Earnings ESP of +3.82% and a Zacks Rank #3.

Royal Caribbean RCL has an Earnings ESP of +15.85% and a Zacks Rank #3.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The Walt Disney Company (DIS): Free Stock Analysis Report

Royal Caribbean Cruises Ltd. (RCL): Free Stock Analysis Report

SeaWorld Entertainment, Inc. (SEAS): Free Stock Analysis Report

Mattel, Inc. (MAT): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: DIS , RCL , SEAS , MAT

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?