We expect the world’s largest manufacturer of toys – Mattel, Inc. (MAT - Free Report) – to beat expectations when it reports third-quarter 2016 numbers on Oct 19, after market closes.
In the last reported quarter, the company’s loss was narrower than the Zacks Consensus Estimate, which led to a positive earnings surprise of 66.67%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Mattel is likely to beat earnings because it has the perfect combination of two key ingredients.
Zacks ESP: Earnings ESP for Mattel stands at +1.43% because the Most Accurate estimate is 71 cents while the Zacks Consensus Estimate is pegged at 70 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Mattel currently sports a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank #1, 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Mattel’s Zacks Rank #1 and +1.43% ESP makes us reasonably confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
Mattel’s increased focus on improving its point of sale through launch of new products, along with strategic initiatives like entering new categories and strengthening the Girls’ portfolio should bolster third-quarter results. Notably, the company’s core brands like Fisher-Price, Hot Wheels, Mega Bloks and RoseArt have been doing well. We anticipate this trend to continue in the to-be-reported quarter.
Meanwhile, efforts undertaken on the digital front and focus on better execution of marketing and promotional initiatives to bring back its flagship brand – Barbie – to its former position should continue yielding results in Q3 as well. The company had witnessed a strong uptick in Barbie sales in second-quarter 2016.
Efforts to achieve cumulative cost savings and enhanced margins should further boost the quarter’s performance.
However, challenging macroeconomic environment and sluggish performance at Mattel Girls & Boys Brands as well as American Girl Brands segments might limit revenue growth in the third quarter.
Moreover, unfavorable foreign exchange translation along with costs related to sales-boosting initiatives may affect the quarter’s performance.
Stocks to Consider
Mattel is not the only company looking up this earnings season. Here are some other companies to consider as our model shows they also have the right combination of elements to post an earnings beat this quarter:
Live Nation Entertainment, Inc. (LYV - Free Report) has an Earnings ESP of +7.84% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Boyd Gaming Corporation (BYD - Free Report) has an Earnings ESP of +20% and a Zacks Rank #2.
Las Vegas Sands Corp. (LVS - Free Report) has an Earnings ESP of +1.70% and a Zacks Rank #3.
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