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Mattel Profits Mask Christmas Caution
Toy maker Mattel (NYSE:MAT) reported strong third-quarter profits on a slight increase in revenue. The outlook for the Christmas season, the critical period for toy manufacturers, is a cautious one. The market responded negatively to this as it sent the stock down.
IN PICTURES: 5 Tips To Reading The Balance Sheet
Inventory Issues
The Christmas season, in which toy makers can do as much as half of their annual business, finds retailers ordering carefully, according to Mattel. Mattel's inventory is 22% higher than a year ago, though retailers' inventories have fallen. After the company worked off inventory last year after the recession, it rebuilt inventories this year to avoid potential shortfalls. The Christmas ordering this season should run later, according to Mattel, so the success or failure of its inventory strategy this year will be known only then.
The third quarter saw Mattel's net income rise 23% on strong sales of Barbie, Disney Princess and Monster High dolls. The company earned $283.3 million, or 77 cents a share, compared to $229.8 million or 63 cents a share last year's same quarter.
Revenue rose 2% to $1.83 billion from $179 billion a year ago. Barbie sales were up 6% globally, 16% in the U.S., while other doll sales rose 7%. Fisher-Price sales fell 5% after a 6% decline last year, but the company was also hit with a recall, as 11 million units were voluntarily recalled at the end of September for safety concerns.
Still Number One
The market currently prefers number two toy maker Hasbro (NYSE:HAS) to Mattel, as it sent Hasbro stock up on its relatively modest earnings report. Hasbro stock has outperformed Mattel, though both have risen this year, even though their earnings and revenue numbers look similar. The Street prefers the fewer negatives it sees with Hasbro, as the Fisher-Price slump and recall weigh down Mattel. The Street expected much larger revenue from Mattel, $1.93 billion in the quarter, so the stock was punished for that also. Yet the Christmas picture looks similar for both toy makers.
Toy Wars Front Lines
In the very competitive toy industry, there is action beyond the big two. JAKKS Pacific (Nasdaq:JAKK) is part of a consortium putting together a Monsuno original animated TV series and will be the toy maker for the popular Japanese monster wrestling products. Educational toy maker Leapfrog Enterprises (NYSE:LF) has been exploring ways to increase its sales via the internet and online marketing. Infant and juvenile products make Kid Brands (NYSE:KID) announced a collaboration with CoCaLo brands. Kid Brands hopes this synergy will further grow its business, infant bedding and accessories. Toy makers and manufacturers of children's products forming new alliances and partnerships further a growing trend in these industries.
The Bottom Line
The reaction of the stock market to Mattel is typically short-term, even if it extends to Christmas. Mattel still did well in many important sales categories beyond its Barbie line, including its Toy Story 3 line and its World Wrestling Entertainment (NYSE:WWE) figures. Analyst estimates for modest earnings increases are still intact, so even if Christmas does not turn out to be as robust as the Street would like, Mattel's still a solid company. (For more, see Why You Shouldn't Buy New Tech Toys.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 5 Tips To Reading The Balance Sheet
Inventory Issues
The Christmas season, in which toy makers can do as much as half of their annual business, finds retailers ordering carefully, according to Mattel. Mattel's inventory is 22% higher than a year ago, though retailers' inventories have fallen. After the company worked off inventory last year after the recession, it rebuilt inventories this year to avoid potential shortfalls. The Christmas ordering this season should run later, according to Mattel, so the success or failure of its inventory strategy this year will be known only then.
The third quarter saw Mattel's net income rise 23% on strong sales of Barbie, Disney Princess and Monster High dolls. The company earned $283.3 million, or 77 cents a share, compared to $229.8 million or 63 cents a share last year's same quarter.
Still Number One
The market currently prefers number two toy maker Hasbro (NYSE:HAS) to Mattel, as it sent Hasbro stock up on its relatively modest earnings report. Hasbro stock has outperformed Mattel, though both have risen this year, even though their earnings and revenue numbers look similar. The Street prefers the fewer negatives it sees with Hasbro, as the Fisher-Price slump and recall weigh down Mattel. The Street expected much larger revenue from Mattel, $1.93 billion in the quarter, so the stock was punished for that also. Yet the Christmas picture looks similar for both toy makers.
Toy Wars Front Lines
In the very competitive toy industry, there is action beyond the big two. JAKKS Pacific (Nasdaq:JAKK) is part of a consortium putting together a Monsuno original animated TV series and will be the toy maker for the popular Japanese monster wrestling products. Educational toy maker Leapfrog Enterprises (NYSE:LF) has been exploring ways to increase its sales via the internet and online marketing. Infant and juvenile products make Kid Brands (NYSE:KID) announced a collaboration with CoCaLo brands. Kid Brands hopes this synergy will further grow its business, infant bedding and accessories. Toy makers and manufacturers of children's products forming new alliances and partnerships further a growing trend in these industries.
The Bottom Line
The reaction of the stock market to Mattel is typically short-term, even if it extends to Christmas. Mattel still did well in many important sales categories beyond its Barbie line, including its Toy Story 3 line and its World Wrestling Entertainment (NYSE:WWE) figures. Analyst estimates for modest earnings increases are still intact, so even if Christmas does not turn out to be as robust as the Street would like, Mattel's still a solid company. (For more, see Why You Shouldn't Buy New Tech Toys.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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