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Earnings Preview: Mattel

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Renowned toy company, Mattel Inc. (MAT - Free Report) is set to unveil its third-quarter 2012 results on Tuesday, October 16, before the market opens. The Zacks Consensus Estimate for third quarter earnings is 99 cents a share on revenues of $2,084.0 million.

Second Quarter Flashback

Mattel reported second quarter 2012 earnings of 28 cents per share outpacing the Zacks Consensus Estimate by 7 cents. Reported earnings were also above the year-ago quarter earnings of 23 cents per share. The better-than-expected results were based on solid performance of Other Girls Brands and margin expansion.

Net sales remained flat year over year at $1,158.7 million but were higher than the Zacks Consensus Estimate of $1,139.0 million.

Worldwide gross sales for Mattel Girls & Boys Brands business unit declined 1% year over year to $781.6 million, as worldwide gross sales for Entertainment business plummeted 36%, attributed to the dip in the Cars 2 movie property. However, worldwide gross sales for the core brands Barbie and Hot Wheels were up 5% and 11%, respectively. Sales for Other Girls Brands shot up 96% driven by Monster High. Fisher-Price Brands sales climbed up 2% to $407.3 million, while the American Girl line climbed up 3% to $68.7 million.

Gross profit increased 7% year over year to $594.5 million and gross margin expanded 340 basis points (bps) year over year to 51.3% due to a 240-bps plunge in cost of sales. Operating income enhanced 20% to $131.4 million and operating margin improved 190 bps to 11.3%, due to lower administrative and promotional expenses (down 30 bps), partially offset by a 180-bps rise in other selling and administrative expenses.

Surprise History

Over the trailing four quarters, Mattel’s earnings surprise ranges from negative 14.3% to positive 33.3%, with the average being positive 8.3%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Zacks Consensus

The analysts covered by Zacks expect Mattel to post earnings of 99 cents per share for the third quarter of fiscal 2012, higher than the prior-year earnings of 86 cents. Currently, the Zacks Consensus Estimate ranges between 94 cents and $1.06 a share.


In the past 30 days, two analysts (out of 12) have made upward revisions while none analyst has reduced his/her estimate for the third quarter. Over the last 7 days, none of the analysts covering the stock revised their estimates.

Similarly, in the last 7 days, none of the 10 estimates for the full year 2012 were revised. However, over the last 30 days, two out of the 10 estimates were raised for the full year 2012.


Given the limited estimate revisions, the Zacks Consensus Estimate for the third quarter of fiscal 2012 has remained static over the last 7 days at earnings of 99 cents a share. However, the estimate has increased by a penny from 98 cents over the last 30 days.

The Zacks Consensus Estimate for fiscal 2012 has remained static over the last 7 at $2.46, but over the last 30 days it climbed up 2 cents from $2.44.

Our Recommendation

We are encouraged by the increased demand for Mattel Toys. Additionally, a calendar shift for this year, the upcoming holiday season and a strong product line up for the remaining part of 2012, makes us optimistic about growth in sales. However, a persistent problem of unemployment, lower consumer spending, increasing input costs and growing competition keep us concerned.

We maintain our Neutral recommendation over the long term (6-12 months). Currently, Mattel has a Zacks #3 Rank, which implies a Hold rating in the short term.

One of Mattel’s primary competitors, Hasbro, Inc. (HAS - Free Report) will release its third-quarter 2012 results on October 22, 2012.

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