Technology

Why Is Mattel (MAT) Down 4.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Mattel (MAT). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mattel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Mattel Q2 Earnings & Sales Beat Estimates

Mattel reported second-quarter 2020 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Both the metrics beat the consensus estimate after missing in the preceding quarter.

However, both earnings and revenues declined year over year. Decline in worldwide gross sales for Dolls, Infant, Toddler and Preschool and Action Figures, Building Sets and Games impacted the second-quarter results. Meanwhile, worldwide gross sales of Vehicles were also down in the quarter under review.

The company reported adjusted loss per share of 26 cents, narrower than the Zacks Consensus Estimate of a loss of 38 cents. In the prior-year quarter, the company reported adjusted loss of 25 cents.

Sales Discussion

Net sales of $732 million surpassed the Zacks Consensus Estimate of $674 million. However, the top line declined 15% year over year. On a constant-currency basis, sales fell 13% from the prior-year quarter.

In North America, gross sales were up 3%, both on a reported and constant-currency basis. This can primarily be attributed to increase in sales in Dolls and Action Figures, Building Sets, Games, and Other (including Star Wars The Child plush and card games, including UNO, partially overshadowed by Toy Story 4). This increase was partially offset by decrease in Vehicles and Infant, Toddler and Preschool

In the International region, gross sales declined 33% (as reported), owing to decrease in sales in Vehicles (including Hot Wheels and CARS), Infant, Toddler, and Preschool (including Fisher-Price and Thomas & Friends and Fisher-Price Friends), Action Figures, Building Sets, Games, and Other (including Toy Story 4 and MEGA). Moreover, gross sales declined 29% in constant currency.

Brand-Wise Worldwide Sales

Mattel, through its subsidiaries, sells a broad range of toys. These items are grouped under different brands — Barbie, Hot Wheels, Fisher-Price and Thomas & Friends and Other.

As reported, worldwide gross sales at Mattel Power Brands were down 15% to $814.6 million year over year. The metric declined 13% on a constant-currency basis. However, the Barbie brand witnessed an improvement of 7% on reported basis and 10% on constant-currency basis. Gross sales at the Hot Wheels brand declined 22% on a reported basis and 19% on constant-currency basis. However, gross sales were down 21% on reported basis and 19% on constant-currency basis at the Fisher-Price and Thomas & Friends brands. Gross sales at Other declined 20% on reported basis and 18% on constant-currency basis.

Operating Results

Adjusted gross margin expanded 410 basis points to 44%, driven by the incremental realized savings from cost savings programs and decline in royalty expense, partially offset by unfavorable impact of lower volumes.
Adjusted other selling and administrative expenses declined 1% to $287.7 million. The improvement can primarily be attributed to benefits from Structural Simplification savings, partially negated by rise in incentive compensation expense.

Balance Sheet

As of Jun 30, 2020, the company’s cash and equivalents were $461.6 million compared with $630 million as of Dec 31, 2019. Total inventories as of the end of the second quarter were down 2.7% year over year to $702.6 million.

The company’s long-term debt was $2,850.8 million as of Jun 30, 2020, higher than $2,846.8 million as of Dec 31, 2019. Shareholder’s equity was $157.986.1 million.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Mattel has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. It comes with little surprise Mattel has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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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.

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