A month has gone by since the last earnings report for Mattel (MAT Quick QuoteMAT - Free Report) . Shares have added about 0.1% in that time frame, outperforming the S&P 500.

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

Mattel Q2 Earnings and Revenues Surpass Estimates

Mattel reported second-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate. However, the top and bottom lines declined on a year-over-year basis.

Earnings & Revenue Discussion

In the quarter under review, the company reported adjusted earnings per share of 10 cents, beating the Zacks Consensus Estimate of a loss of 4 cents. In the year-ago quarter, it reported adjusted earnings per share (EPS) of 18 cents.

Net sales during the quarter amounted to $1,087.2 million, outpacing the Zacks Consensus Estimate of $996 million. The top line decreased 12% year over year. On a constant-currency (cc) basis, sales declined 13% from the prior-year quarter’s figure. The dismal performance of the Barbie brand negatively impacted the company’s performance.

In the North America segment, gross billings fell 18% (as reported and at cc) year over year. Gross billings in the International segment dipped 1% (on a reported basis) and 3% (at cc) year over year. The segment was affected by dismal performance of Action Figures, Building Sets, Games and Other (primarily Action Figures), Infant, Toddler and Preschool (including Fisher-Price), and Vehicles (including Hot Wheels), marginally overshadowed by growth in Dolls. Our model predicted North America and International gross billings to tumble 23.5% and 17.6% year over year, respectively.

Net sales in the North America segment declined 18% year over year on a reported basis and at cc. The International segment’s net sales fell 3% (as reported) and 5% (at cc) year over year. Our model estimated North America and International revenues to decline 22.5% and 17.8% year over year, respectively.

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, Thomas & Friends, and Other.

Worldwide gross billings by Mattel Power Brands fell 11% (on a reported basis) and 12% (at cc) year over year to $1,227.5 million. The Barbie brand witnessed a decline of 6% (on a reported basis) and 7% (at cc) year over year.

Gross billings at the Hot Wheels brand rose 10% (on a reported basis) and 9% (at cc) year over year. Gross billings at Fisher-Price were down 28% (on a reported basis) and 29% (at cc) year over year. Gross billings at Other decreased 17% (on a reported basis) and 18% (at cc) year over year.

Operating Results

During the second quarter, the company’s adjusted gross margin came in at 44.9%, flat year over year. Gross margin benefited from Optimizing for Growth program, foreign exchange favorability as well as lower severance and restructuring expenses. However, inventory management efforts including higher close-out sales and inventory obsolescence expense, cost inflation and an unfavorable fixed cost absorption negatively impacted the margin.

During the quarter under discussion, adjusted other selling and administrative expenses declined $19 million year over year to $324 million. The downside was due to Optimizing for Growth program and cost management efforts.

Balance Sheet

As of Jun 30, 2023, cash and cash equivalents were $299.9 million compared with $274.5 million as of Jun 30, 2022. Total inventories at the end of the second quarter came in at $971.6 million compared with $1,177.6 million reported in the prior year quarter.

Long-term debt (as of Jun 30, 2023) was $2,327.8 million compared with $2,323.3 million as of Jun 30, 2022. Shareholders’ equity was $1,962.4 million.

Outlook

For 2023, management continues to anticipate flat net sales in comparison with 2022 at cc. Adjusted gross margin is expected to be 47% compared with 45.9% reported in the prior year. Adjusted EBITDA is projected in the range of $900-$950 million compared with $968 million reported in the prior year.

Capital expenditures are suggested in the range of $175-$200 million compared with $187 million reported in 2022. MAT anticipates 2023 adjusted EPS to be between $1.10 and $1.20, down from $1.25 reported in 2022.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Mattel has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Mattel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.