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Analyst Blog

Mattel Inc. (MAT - Analyst Report) reported third quarter 2012 earnings of $1.04 per share outpacing the Zacks Consensus Estimate of 99 cents as well as the year-ago quarter level of 86 cents. Solid performance in Other Girls brands and margin expansion led to the beat.

Quarter Highlights

During the quarter, net sales grew 4% year over year to $2,077.8 beating the Zacks Consensus Estimate of $2,076.0 million. Net sales included an unfavorable foreign currency impact of 3 percentage points.

Worldwide gross sales were $2,273.7 million versus $2,183.2 million in the prior-year period. U.S. gross sales increased 6% year over year while international gross sales nudged up 2% year over year, albeit an adverse currency impact of 9 percentage points.

Gross Sales for Mattel Girls & Boys Brands business unit expanded 3% year over year to $1,371.1 million while the same for Entertainment business plummeted 18%, attributed to a dip in the Cars 2 movie property.

Sales for Other Girls Brands shot up 57% driven by Monster High. Fisher-Price Brands sales climbed 6% to $790.4 million while the American Girl line leaped 16% to $102.0 million.

Gross margin expanded 590 basis points (bps) year over year to 53.7% while operating margin improved 360 bps to 23.5%.

Liquidity

As of September 30 2012, Mattel’s cash and cash equivalents were $282.1 million compared with $254.5 million as of September 30, 2011. Long-term debt was $1,150.0 million versus $900.0 million in the year-ago quarter.

The company’s debt-to-total-capital ratio stood at 36.3% at the end of the reported quarter. As of September 30, 2012, shareholders’ equity was $2.9 billion versus $2.4 billion as of September 30, 2011.

Share Repurchase

During the quarter, Mattel bought back 139,000 shares for approximately $5 million.

Our Take

The better-than-expected results for two successive quarters delivered by Mattel inspire optimism around the stock. We remain encouraged by the company’s industry leading position, a favorable calendar shift for the year 2012, the upcoming holiday season and a strong product line up for the remaining part of the year.

However, increasing input costs, unfavorable shift in currency exchange rate, tough retail environment amid a tepid economy and the stiff competition are some causes of concern.

Mattel currently carries a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We reiterate our long-term ‘Neutral’ recommendation on the stock.

One of Mattel’s closest competitors, Hasbro Inc. (HAS - Analyst Report) is slated to report its third quarter 2012 results on October 22, 2012.
 

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