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Why Is Mattel (MAT) Down 1.7% 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 1.7% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Mattel Q3 Earnings and Revenue Beat Estimate

Mattel has reported better-than-expected third-quarter 2019 results, wherein both earnings and revenues surpassed the respective Zacks Consensus Estimate. While the bottom line beat the consensus estimates for the fifth straight quarter, the top line surpassed the same for the fourth consecutive quarter.

The company reported adjusted earnings of 26 cents, which surpassed the Zacks Consensus Estimate of 8 cents and improved 44.4% year over year. The company’s results in the quarter benefited from robust sales of Dolls category and Barbie.

Sales Discussion

Net sales of $1,481.6 million surpassed the consensus mark of $1,421 million and improved 3% year over year. On a constant-currency basis, sales grew 4% from the prior-year quarter.

Worldwide gross sales were up 3% year over year (as reported) and increased 4% at constant currency. In North America, gross sales declined 1%, both as reported and at constant currency.

Meanwhile, in the International region, gross sales increased 10% (as reported), driven by growth in Action Figures, Building Sets and Games (including Toy Story 4), Dolls (including Barbie, Polly Pocket and the launch of BTS, partially overshadowed by owned brands), and Vehicles. This improvement was partially offset by a decline in Infant, Toddler and Preschool (including Fisher-Price Core, and Thomas & Friends). Further, gross sales increased 13% in constant currency.

Brand-Wise Worldwide Sales

Mattel, through its subsidiaries, sells a broad range of toys. These items are grouped under four wide categories — Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

As reported, worldwide gross sales at Mattel Power Brands improved 10% to $721.7 million year over year. The metric increased 13% on a constant-currency basis. Further, the Barbie brand witnessed 10% growth as reported and 12% in constant currency, driven by positive POS momentum. Also, gross sales at the Hot Wheels brand increased 25% on a reported basis and 27% in constant currency. However, gross sales were down 3% as reported and 2% in constant currency at the Fisher-Price and Thomas & Friends brands. Gross sales at Other decreased 6% as reported and 4% in constant currency.

Operating Results

Adjusted gross margin expanded to 46.9% from 43% in the year-ago quarter, buoyed by savings from the Structural Simplification program and lower foreign exchange.

Adjusted other selling and administrative expenses improved 12% to $366 million. The increase was primarily driven by a higher incentive compensation accrual and recovery of Toys “R” Us bad debt in third-quarter 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -120.83% due to these changes.

VGM Scores

Currently, Mattel has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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.


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