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Mattel (MAT) Q4 Earnings to Suffer Despite Cost-Saving Program

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Mattel, Inc. (MAT - Free Report) is scheduled to report fourth-quarter 2018 financial numbers on Feb 7, after the market closes.

Like most other traditional toymakers in the United States, Mattel is facing a dearth of consumer demand for quite some time now. Due to the Toys ‘R’ Us liquidation, Mattel has recorded dismal sales over the past few quarters and this trend is likely to have continued in fourth-quarter 2018. Tighter retail inventory management significantly affected Mattel’s sales so far this year and may continue to hamper revenues in the soon-to-be-reported quarter. Meanwhile, despite cost-saving program, Mattel is expected to incur loss in the to-be-reported quarter.

Mattel suspended the quarterly dividend to augment financial flexibility, fortify balance sheet and facilitate investments. The dividend suspension is not going down well with the investors and, in turn, is hurting the company’s share-price performance. Shares of Mattel have lost 23.3% over the past six months compared with the industry’s 27.2% decline.

Factors to Affect Q4 Results

Since the U.S. toy market is somewhat saturated, toy companies are exploring growth opportunities abroad. International markets offer greater potential based on the pace of economic growth that they currently enjoy. Mattel has been seriously focusing on accelerating presence in Europe, Latin America and countries in Asia.

However, the lack of innovative schemes for brand awareness and brand innovation has been hurting the company’s revenues and POS momentum. Though overall POS has been mostly positive, owing to Mattel’s efforts to lower retail inventories, the improvement is not broad-based. We need to wait for more consistent progress at all of its brands. Meanwhile, Toys ‘R’ Us liquidation and slowdown in China operation significantly affected the company’s sales in third-quarter 2018.

The Zacks Consensus Estimate for International gross revenues in the fourth quarter is pegged at $729 million, reflecting a 15.9% year-over-year decline. Despite relying heavily on a growing pipeline of tech-enabled products that capitalize on new play patterns and allow it to extend beyond traditional toys for younger age groups, the company is unable to revive sales. The consensus estimate for total revenues in the fourth quarter is pegged at $1.4 billion, marking 12% fall from the year-ago quarter.

Meanwhile, Mattel remains focused on achieving cumulative cost savings, leading to margin expansion. Basically, the company is simplifying organization structure, and optimizing processes and supply chain to generate savings across operations. However, this is not enough to navigate the greater top-line pressure in the fourth quarter. The consensus estimate, therefore, predicts loss of 11 cents for the to-be-reported quarter.

What Does the Zacks Model Unveil?

Our proven model does not predict that Mattel is likely to beat estimates in the fourth quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Currently, Mattel has an Earnings ESP of -67.65% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Mattel, Inc. Price and EPS Surprise


Stocks Poised to Beat Earnings Estimates

Here are some stocks from the Consumer Discretionary sector that investors may consider as our model shows that these have the right combination of elements to come up with an earnings beat in the to-be-reported quarter:

Penn National (PENN - Free Report) has an Earnings ESP of +4.76% and a Zacks Rank #3. The company is scheduled to report quarterly numbers on Feb 7.

SeaWorld (SEAS - Free Report) has an Earnings ESP of +38.46% and it currently sports a Zacks Rank #1. The company is scheduled to report quarterly numbers on Feb 26.

Hudson (HUD - Free Report) has an Earnings ESP of +9.68% and a Zacks Rank #3.

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