Mattel's (MAT) Q3 Earnings Drive Past Estimates, Stock Up

Mattel, Inc.MAT reported mixed third-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but sales lagged the same. Notably, the bottom line came ahead of the consensus mark after missing the same in the trailing seven quarters. Meanwhile, the top line fell short of the estimate for the second straight quarter.

However, the big take away from the quarter was increase in operating income for the first time in eight quarters. Following the quarterly results, shares of the company's increased 6.6% in after-hours trading.

In a year's time, the stock has lost 1.2% compared with the industry 's 3.5% decline.

Adjusted earnings came in at 18 cents per share, outpacing the Zacks Consensus Estimate by a couple of cents. In the prior-year quarter, Mattel had incurred loss of 4 cents per share. Sharp increase in earnings was primarily driven by the company's cost saving initiatives.

Sales Discussion

Net sales of $1,437.5 million lagged the consensus estimate of $1,507 million and declined 8% year over year. This underperformance can be attributed to Toys 'R' Us liquidation and slowdown in China operation. On a constant-currency basis, sales decreased 6% from the prior-year quarter number. Notably, Toys 'R' Us liquidation and slowdown in China operation negatively impacted sales by 3% each.

Worldwide gross sales were down 6% year over year as reported and 4% at constant currency. In North America (including, the United States, Canada and American Girl), the metric rose 6% as reported owing to robust sales of Barbie despite a 4% negative impact from Toys "R" Us liquidation. On a reported basis, net sales from the same region increased 4% year over year.

Meanwhile, in the International region, gross sales declined 16% as reported and 11% in constant currency.

Mattel, Inc. Price, Consensus and EPS Surprise

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

Brand-Wise Worldwide Sales

Mattel, through its subsidiaries, sells a broad range of toy products. These items are grouped into four major categories - Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

Power Brands

As reported, worldwide gross sales at Mattel Power Brands decreased 5% to $1.08 billion year over year. The metric declined 2% on constant-currency basis. On the flip side, the Barbie brand witnessed 14% growth as reported and 17% in constant currency owing to positive POS momentum. Also, gross sales at the Hot Wheels brand increased 6% on a reported basis and 3% in constant currency, courtesy of advance sales of the theatrical release of Star Wars as well as a Toys "R" Us exclusive product offering.

At the Fisher-Price and Thomas & Friends brands, gross sales were down 12% as reported and 10% on a constant-currency basis. The same at American Girl decreased 31% on a reported basis.

Toy Box

In the third quarter, worldwide gross sales at Mattel Toy Box brands (Owned Brands and Partner Brands) came in at $523.2 million, down 9% as reported and 6% on constant currency. The same at Owned Brands decreased 1% as reported but up 2% in constant currency. Meanwhile, at Partner Brands, the metric declined 17% as reported and 15% at constant currency.

Operating Results

Adjusted gross margin expanded 43% from 41.5% in the year-ago quarter, buoyed by Structural Simplification savings - a benefit owing to the previous year Toys "R" Us sales reversal and favorable logistics costs.

Net income in the quarter totaled $121.9 million, reflecting a year-over-year increase of 41% as reported.

Balance Sheet

As of Sep 30, 2018, the company's cash and equivalents were $209.2 million compared with $181.3 million as of Sep 30, 2017. Total inventories decreased 26.7%.

The company's long-term debt summed $2.84 billion as of Sep 30, 2018, higher than $1.88 billion as of Sep 30, 2017. Shareholder's equity was $666.4 million.

Mattel, which shares space with Glu Mobile Inc. GLUU , JAKKS Pacific, Inc. JAKK and Activision Blizzard, Inc. ATVI , has a Zacks Rank #4 (Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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

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

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