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Why Is Mattel (MAT) Down 2.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Mattel (MAT - Free Report) . Shares have lost about 2.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mattel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Mattel Q1 Earnings & Revenues Top Estimates, Stock Up

Mattel delivered impressive first-quarter 2022 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. The metrics not only beat the consensus mark for the eighth consecutive quarter but also improved on a year-over-year basis.

Earnings & Revenues Discussion

During the first quarter, the company reported adjusted earnings per share (EPS) of 8 cents, against the Zacks Consensus Estimate of loss of 5 cents. In the prior-year quarter, the company reported an adjusted loss of 10 cents.

Net sales during the quarter amounted to $1,041.3 million, surpassing the Zacks Consensus Estimate of $932 million. The top line rose 19% year over year. On a constant-currency basis, sales improved 22% from the prior-year quarter’s levels.

In North America, gross billings surged 25% (as reported and at constant currency) year over year. This can primarily be attributed to an increase in sales in Action Figures, Building Sets, Games, and Other (including Jurassic World, Lightyear, and MEGA), Vehicles (including Hot Wheels), Infant, Toddler, and Preschool (including Fisher-Price and Thomas & Friends), and Dolls (including Barbie and Polly Pocket). Net sales in the North America segment rose 26% year over year on a reported and constant-currency (cc) basis.

In the International region, gross billings rose 16% (as reported) and 24% (at cc) year over year. The uptick was driven by growth in Vehicles (including Hot Wheels), Dolls (including Barbie and Polly Pocket), and Action Figures, Building Sets, Games, and Other (including Jurassic World, MEGA, and Lightyear). Net Sales in the International segment increased 16% (on a reported basis) and 24% (at cc) year over year.

Brand-Wise Worldwide Sales

Mattel, through its subsidiaries, sells a broad range of toys. These items are grouped under different brands — Barbie, Hot Wheels, Fisher-Price and Thomas & Friends and Other.

As reported, worldwide gross billings by Mattel Power Brands climbed 19% year over year to $1,164.4 million. The metric advanced 23% year over year at cc. The Barbie brand witnessed an improvement of 8% (on a reported basis) and 12% (at cc) year over year. Gross billings at the Hot Wheels brand rose 31% (on a reported basis) and 36% (at cc) year over year. Gross billings at the Fisher-Price and Thomas & Friends brands were up 10% (on a reported basis) and 13% (at cc) year over year. Gross billings at Other increased 26% (on a reported basis) and 29% (at cc) year over year.

Operating Results

Adjusted gross margin contracted 70 basis points year over year to 46.6% due to input cost inflation. However, the decline was offset by benefits associated with pricing, favorable fixed cost absorption and savings from the Optimizing for Growth program.

During the quarter under discussion, adjusted other selling and administrative expenses increased by $13 million year over year to $322 million. The increase can primarily be attributed to increased higher employee-related expenses.

Balance Sheet

As of Mar 31, 2022, the company’s cash and equivalents were $536.6 million compared with $615.2 million as on Dec 31, 2021. Total inventories as of the end of the first quarter were up 54.7% year over year to $969.2 million.

The company’s long-term debt was $2,322.1 million as of Mar 31, 2022, lower than $2,837.7 million as of Dec 30, 2021. Shareholder’s equity was $1,618.1 million.

Outlook

For 2022, the company continues to anticipate net sales to grow in the range of 8-10% at cc. Adjusted gross margin for 2022 is expected at 47%. Adjusted EBITDA for 2022 is expected in the range of $1,100-$1,125 million, suggesting an increase from $1,007 reported in 2021. Capital expenditures for 2022 are expected to be $175-$200 million. The company continues to anticipate 2022 adjusted EPS in the range of $1.42-$1.48. Its mid-point of $1.45 is above the current Zacks Consensus Estimate of $1.43.

For 2023, the company anticipates net sales to grow in high-single digit on a constant currency basis. Adjusted operating income margin for 2023 is expected between 16% and 17% of net sales. For 2023, the company continues to expect adjusted EPS to be greater than $1.90.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

The consensus estimate has shifted 31.82% due to these changes.

VGM Scores

Currently, Mattel has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Mattel has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Mattel is part of the Zacks Toys - Games - Hobbies industry. Over the past month, Activision Blizzard, Inc (ATVI - Free Report) , a stock from the same industry, has gained 1.7%. The company reported its results for the quarter ended March 2022 more than a month ago.

Activision Blizzard, Inc reported revenues of $1.48 billion in the last reported quarter, representing a year-over-year change of -28.3%. EPS of $0.38 for the same period compares with $0.84 a year ago.

For the current quarter, Activision Blizzard, Inc is expected to post earnings of $0.48 per share, indicating a change of -47.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -9.5% over the last 30 days.

Activision Blizzard, Inc has a Zacks Rank #5 (Strong Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.


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