Mattel, Inc.MAT is slated to report its second quarter 2015 results after the markets close on Jul 16, 2015. Last quarter, it posted a positive earnings surprise of 11.1%. Let's see what is in store this season.
Factors to Consider
Except for the last quarter, this toy maker has missed the Zacks Consensus Estimate on both fronts in the past five quarters. The downside reflects sluggish economic conditions and lack of innovative schemes for brand awareness and brand innovation, which have been dampening point of sale (POS) momentum.
Also, sluggish performance of Barbie has been a matter of concern for Mattel since the beginning of 2013. Moreover, the rate of year-over-year decline in revenues has increased every quarter owing to weak demand for traditional toys. Increasing inclination of kids toward electronically driven devices has adversely impacted the demand for traditional products.
Moreover, kids are moving on much faster than they used to and also get bored easily. For instance, earlier, the demand for Barbie was more common among kids aged 3 to 9 years, which has narrowed down to 3 to 6 years. This is tapering the demand for toys, thereby hurting revenues. These factors would continue to impact the profits of the company in the soon-to-be reported quarter also.
Meanwhile, despite cost saving initiatives, margins would continue to remain under pressure owing to costs related to the clearing of inventories, digital efforts and marketing and promotional initiatives.
Though the company is aggressively making efforts to improve point of sale and new products and partnerships are in the pipeline, these efforts would take some time to generate sufficient revenues. Also, the newly acquired Canadian toy maker, Mega Brands would add to the top line in the soon-to-be reported quarter.
Our proven model does not conclusively show that Mattel is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The company's Earnings ESP stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 5 cents.
Zacks Rank: Mattel has a Zacks Rank #4 (Sell). 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 momentum.
Stocks to Consider
Here are some companies in the Toys industry and 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:
Electronic Arts Inc. EA with an Earnings ESP of +22.22% and a Zacks Rank #1 (Strong Buy).
The Madison Square Garden Company MSG with an Earnings ESP of +5.13% and a Zacks Rank #2 (Buy).
Masonite International Corporation DOOR with an Earnings ESP of +8.33% and a Zacks Rank #2.