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Will Fx Headwinds Take a Toll on Mattel's (MAT) Q3 Earnings?

Mattel, Inc.MAT is slated to report its third quarter 2015 results after the markets close on Oct 15, 2015. Last quarter, it posted a positive earnings surprise of 120%. Let's see what is in store this season.

Factors to Consider

Mattel has considerable international presence and is therefore highly vulnerable to fluctuations in exchange rates. Foreign exchange translation has been hurting revenues of the company over the past few quarters and the trend is likely to continue in the soon-to be reported quarter. In fact, the company expects the strengthening of the U.S dollar to negatively impact results in the second half of the year.

Lack of innovative schemes for brand awareness and brand innovation have been dampening revenues and POS momentum of the company. Also, sluggish performance of Barbie has been a matter of concern for Mattel since the beginning of 2013. Weak demand for traditional toys and increasing inclination of kids toward electronically driven devices has adversely impacted the demand for traditional products. This would continue to keep the top line under pressure.

The company is aggressively making efforts to improve point of sale and new products. However, all its brands have not yet shown consistent improvement. Meanwhile, the acquisition of Canadian toy maker, Mega Brands Inc., closed in Apr 2014 and comprising Mega Bloks and RoseArt brands, is expected to add to the top line in the soon-to-be reported quarter. Gross sales from this acquired brand were in line with its expectations in the first half of the year.

Despite cost saving initiatives, margins would remain under pressure in the to-be reported quarter owing to costs related to marketing and promotional initiatives as had been the case in the first half of the year.

Earnings Whispers?

Our proven model does not conclusively show that Mattel is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Mattel has an Earnings ESP of -10.13%. This is because the Most Accurate estimate is pegged at 71 cents, while the Zacks Consensus Estimate stands higher at 79 cents.

Zacks Rank: Mattel's Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

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

Stocks to Consider

Here are some companies in the broader consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Norwegian Cruise Line Holdings Ltd. NCLH with an Earnings ESP of +1.48% and a Zacks Rank #1 (Strong Buy).

Royal Caribbean Cruises Ltd. RCL with an Earnings ESP of +0.37% and a Zacks Rank #2 (Buy).

Churchill Downs Inc. CHDN with an Earnings ESP of +1.70% and a Zacks Rank #2.

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ROYAL CARIBBEAN (RCL): Free Stock Analysis Report

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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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