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Mattel’s Near-Term Momentum
Toy and game designer Mattel (NYSE:MAT) is currently seeing a good degree of sales momentum due to a hit movie and resurgence in a couple of storied toy brands. Whether this momentum will continue is uncertain, but there are other positives to the investment story.
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Second Quarter Sales Review
Net sales jumped 13% to just over $1 billion on the back of namesake brand sales, which grew an impressive 21% to account for 59% of gross sales. Fisher-Price branded merchandise reported modest 4% top-line growth to make up 35% of sales. The third and final American Girl Brands segment experienced a 4% sales decline but only accounted for 6% of sales.
Core brands such as Barbie and Hot Wheels witnessed strong trends, with top-line growth of 6% and 11%, respectively. Sales of toys bearing Disney's (NYSE:DIS) Toy Story 3 brand are also helping boost near-term sales momentum. Mattel licenses other trademarks and characters from Disney, as well as brand related to Viacom's (NYSE:VIA) (NYSE:VIA.B) Nickelodeon franchise. Geographically, sales in the U.S. were strongest, rising 17% but were also robust internationally and improved 9%.
Profit Recap
Operating income more than doubled to $69.4 million, and was due mostly to lower product costs that boosted gross margins to 48.1% of sales. Other operating expenses increased at the same pace as sales. Net income also more than doubled to $51.6 million, or 5.1% of sales. Diluted earnings came in at 14 cents per diluted share, which again was more than double last year's second quarter but slightly below analyst expectations.
Outlook
Analysts currently project full-year sales growth of approximately 9% to just under $6 billion. Earnings should exceed $1.80 per share and would represent year-over-year growth of 24%.
Bottom Line
Over the past decade, Mattel has struggled to sustain consistent sales and profit growth. Returns on invested capital have been respectable in the mid-teens, but also haven't improved much over time. However, they have ticked up to the high teens over the past twelve months and near-term sales momentum is building.
The wild card is if Mattel is able to sustain this momentum for an extended period of time. A forward P/E below 12 and improving cash flow trends are positives, as is a decent current dividend yield of 3.3%. Archrival Hasbro (NYSE:HAS) has a higher forward multiple, carries more debt on its balance sheet, lower dividend yield, and has reported lower profit margins over the past year. Overall, Mattel is worth a close look, especially if the stock falls back below $20 per share. (Learn more about how to gauge momentum in Momentum and the Relative Strength Index.)
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Second Quarter Sales Review
Net sales jumped 13% to just over $1 billion on the back of namesake brand sales, which grew an impressive 21% to account for 59% of gross sales. Fisher-Price branded merchandise reported modest 4% top-line growth to make up 35% of sales. The third and final American Girl Brands segment experienced a 4% sales decline but only accounted for 6% of sales.
Core brands such as Barbie and Hot Wheels witnessed strong trends, with top-line growth of 6% and 11%, respectively. Sales of toys bearing Disney's (NYSE:DIS) Toy Story 3 brand are also helping boost near-term sales momentum. Mattel licenses other trademarks and characters from Disney, as well as brand related to Viacom's (NYSE:VIA) (NYSE:VIA.B) Nickelodeon franchise. Geographically, sales in the U.S. were strongest, rising 17% but were also robust internationally and improved 9%.
Profit Recap
Operating income more than doubled to $69.4 million, and was due mostly to lower product costs that boosted gross margins to 48.1% of sales. Other operating expenses increased at the same pace as sales. Net income also more than doubled to $51.6 million, or 5.1% of sales. Diluted earnings came in at 14 cents per diluted share, which again was more than double last year's second quarter but slightly below analyst expectations.
Analysts currently project full-year sales growth of approximately 9% to just under $6 billion. Earnings should exceed $1.80 per share and would represent year-over-year growth of 24%.
Bottom Line
Over the past decade, Mattel has struggled to sustain consistent sales and profit growth. Returns on invested capital have been respectable in the mid-teens, but also haven't improved much over time. However, they have ticked up to the high teens over the past twelve months and near-term sales momentum is building.
The wild card is if Mattel is able to sustain this momentum for an extended period of time. A forward P/E below 12 and improving cash flow trends are positives, as is a decent current dividend yield of 3.3%. Archrival Hasbro (NYSE:HAS) has a higher forward multiple, carries more debt on its balance sheet, lower dividend yield, and has reported lower profit margins over the past year. Overall, Mattel is worth a close look, especially if the stock falls back below $20 per share. (Learn more about how to gauge momentum in Momentum and the Relative Strength Index.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
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