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Mattel Inc.'s (MAT - Analyst Report) third-quarter 2013 earnings of $1.16 per share beat the Zacks Consensus Estimate of $1.10 by 5.5% and were 11.5% higher than the year-ago earnings of $1.04. Earnings in the quarter were driven by higher top line and margin expansion.

During the quarter, net sales increased 6.2% year over year to $2.21 billion and were also ahead of the Zacks Consensus Estimate of $2.16 billion by 2.3%. Higher international as well as domestic sales boosted the top line during the quarter. Quarterly net sales included an unfavorable foreign currency impact of 1 percentage points.

Quarter Highlights

Gross sales from North America (including the U.S., Canada and American Girl) increased 3% year over year. International gross sales also went up by 9.0% year over year.

Mattel’s product segments comprise Mattel Girls & Boys Brands, Fisher-Price Brands and American Girl Brands.

Worldwide gross sales at Mattel Girls & Boys Brands increased 8% year over year to $1.48 billion. Other Girls Brands sales shot up 28% buoyed by the higher demand in the Monster High brand. Barbie sales increased 3%. Entertainment business’ worldwide gross sales were up 7% gaining from the higher sales of the Disney Planes movie. However, the Wheels category’s sales declined 9% due to lower sales of Tyco R/C and Matchbox products.

Sales at Fisher-Price Brands, which includes Fisher-Price Core, Fisher-Price Friends and Power Wheels brands, remained flat year over year at $789.3 million.

American Girl Brands leaped 20% to $122.3 million, primarily led by Saige, 2013 Girl of the Year, American Girl, Bitty Baby and Historical dolls products.

Gross margin was up 10 basis points (bps) to 53.8%, driven by increased top line offsetting higher cost of sales. Operating margin increased 40 bps to 23.9%.

Share Buyback Activity & Dividend

During the third quarter, Mattel repurchased 6.1 million shares worth $259 million. The company has declared that it will pay its fourth-quarter dividend of 36 cents per share on Dec 13, 2013, to shareholders of record at the close of business on Nov 27, 2013. In 2013, the company’s annual dividend is $1.44 per share, up 16% from the prior year’s dividend.

Our Take

The better-than-expected third-quarter results of Mattel reinforce faith on the stock. Sales at the company’s Barbie brand also increased during the quarter.

However, tough retail environment amid a tepid economy and the stiff competition are causes of concern. Continued weak performance of the Zacks Rank #4 (Sell) company’s Fisher-Price brand also added to the woes.

Other toy makers such as, Jakks Pacific Inc. (JAKK - Analyst Report), Hasbro Inc. (HAS - Analyst Report) and LeapFrog Enterprises Inc. (LF - Snapshot Report), are slated to report quarterly earnings soon. While Hasbro will report on Oct 21, Jakks Pacific and LeapFrog will likely report on Oct 23 and Nov 4, respectively.

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