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What's in the Cards for Mattel (MAT) This Earnings Season?

Leading toy-maker, Mattel, Inc.MAT is scheduled to report third-quarter 2017 results on Oct 26, after market close.

We note that the Toys "R" Us bankruptcy filed in September is likely to impact Mattel's revenues and operating profit in the to-be-reported quarter as the retailer makes up a sizeable portion of Mattel's sales.

Meanwhile, the company expects continued gross margin headwinds in the second-half of 2017, given lower licensing income. Also, we note that Mattel plans to make incremental investments in order to drive growth and margin improvement. Though the investments are set to reap benefits in the long term, it may pressurize the company's margins in the quarter.

Also, foreign currency fluctuation remains a cause of concern owing to the company's widespread global presence.

Further, the estimates have revised 13.8% downward over the past 60 days. The Zacks Consensus Estimate for third-quarter earnings of 56 cents reflects a decline of 20.2% year over year.

Mattel, Inc. Price and EPS Surprise

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

Also, our quantitative model predicts that Mattel does not have the right combination of two main ingredients - a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher - for increasing the odds of an earnings beat.

Zacks ESP : Mattel has an Earnings ESP of +4.78%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Mattel has a Zacks Rank #5 (Strong Sell).

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

Segment Performance

At the Mattel Girls & Boys Brands, performance of the Other Girls brand has been a matter of concern for long, given declines in Monster High and Ever After High sales. This quarter is no exception. In fact, the Zacks Consensus Estimate of $136 million for worldwide gross sales for this brand reflects a decrease of 16% year over year.

Markedly, efforts on the digital front and focus on better execution of marketing and promotional initiatives are likely to drive sales at the iconic Barbie brand in the quarter. Meanwhile, the Entertainment business is expected to continue performing strongly backed by sales of Cars 3 products. The Zacks Consensus Estimate for gross sales is pegged at $363 million and $361 million for Barbie brand and Entertainment business, reflecting a year-over-year jump of 3.7% and 34.7%, respectively.

Overall, worldwide gross sales in this segment is projected to witness a 8.2% year-over-year rise as the Zacks Consensus Estimate for the to-be-reported quarter is pegged at $1.15 billion.

Furthermore, the company's Fisher-Price Brands are expected to witness continued point of sale (POS) momentum in the quarter. The Zacks Consensus Estimate for the segment's gross sales of $671 million reflects a rise of 1.4% from the prior-year quarter.

Gross sales at Construction and Arts & Crafts Brands that include the Mega Bloks and RoseArt brands might drop in the quarter, given declines in Mega Bloks licensed products. The Zacks Consensus Estimate for the same is pegged at $115 million, reflecting a year-over-year decrease of 1.4%.

The company has also not been able to fully regain its loss of momentum in American Girl Brands and needs to do a lot to capture the full potential of this incredible brand. In fact, the brand has been posting disappointing performance in the last two quarters and is expected to continue doing so in the to-be-reported quarter. The Zacks Consensus Estimate for segment's gross sales of $115 million reflects a decline of 8.7% year over year.

Other Factors Likely to Affect Q3 Results

Consumer spending uncertainty in the United States as customers restrain their non-essential purchases, along with overall challenging macroeconomic environment are a threat to Mattel's top-line growth.

Yet, Mattel's continual efforts to improve point of sale through launch of new products along with its incremental licensed entertainment portfolio are likely to drive third-quarter results. Also, increased focus on building its Power Brands (American Girl, Barbie, Fisher-Price, Hot Wheels and Thomas & Friends) into 360-degree connected systems of play and experiences are anticipated to bolster results in the to-be-reported quarter.

Also, strategic investments in emerging markets, particularly China, may further boost sales. In fact, the Zacks Consensus Estimate for gross sales in the International region is pegged at $831 million for the quarter under review, representing a year-over-year estimated rise of 24.8%.

Markedly, the Zacks Consensus Estimate for overall third-quarter sales is pegged at $1.84 billion, reflecting an increase of 2.2% year over year.

Stocks to Consider

Here are some companies to consider as our model shows that they have the right combination of elements to post earnings beat this quarter.

Take-Two Interactive Software, Inc. TTWO has an Earnings ESP of +0.94% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Glu Mobile Inc. GLUU has an Earnings ESP of +16.67% and a Zacks Rank #2 (Buy).

Electronic Arts Inc. EA has an Earnings ESP of +4.17% and a Zacks Rank #2.

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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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