Mattel Adjusted Earnings Beat Estimates as Margin Widened

Mattel reported that it broke even in the fourth quarter on 3.3% lower revenue, with both figures coming in weaker than Wall Street expected. But its adjusted profit came in well ahead of estimates.
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Mattel (MAT) - Get Report reported that it broke even in the fourth quarter on 3.3% lower revenue, with both figures coming in weaker than Wall Street expected. But its adjusted profit came in well ahead of estimates.

The El Segundo, Calif. toymaker broke even on a per-share basis in the quarter, compared with a profit of 3 cents a share in the year-earlier quarter. The latest adjusted earnings were 11 cents a share.

Revenue fell to $1.47 billion from $1.52 billion.

A survey of analysts by FactSet produced consensus estimates of 2 cents a share of profit, or an adjusted 1 cent, on $1.5 billion of revenue.

At last check Mattel shares were trading up 5% in after-hours action. They closed the regular session down 0.8% at $14.40. The stock has bounced off its 52-week low above $9, set in late August.

In the quarter, foreign-currency translations pared $9 million from sales, Mattel reported.

Gross-profit margin widened 1.8 percentage points to 48.4%. The adjusted margin fattened 2.3 points to 48.9%.

The year “2019 was an important inflection point in our turnaround," Chairman and CEO Ynon Kreiz said in a statement. 

"We stabilized our top line after five consecutive years of revenue decline, continued to significantly improve profitability, and achieved positive operating cash flow and positive free cash flow for the first time in three years."

Quarterly worldwide sales in the dolls segment were off 6%, reflecting a decline in American Girl and growth in Barbie.

Global sales in the Infant, toddler and preschool segment, which includes Fisher-Price and Thomas & Friends, were off 9%.

And Hot Wheels helped vehicle sales rise 1%.

A week ago JP Morgan analyst Tami Zakaria wrote an earnings preview on Mattel. The analyst rates the stock overweight. 

She said that investor concern about a general downturn In the toy industry were "overblown." She expects Mattel's net sales to grow 1.7% in 2020.

Zakaria sees opportunities for Mattel to cut more costs. Two weeks ago the company said that its Mega Bloks production facility in Montreal would close this year, with production moving to China and Mexico. The closing will cut some 580 workers.

The analyst said she had also fielded a question from investors about why Sony Pictures (SNE) - Get Report indefinitely delayed the release date for the "Masters of the Universe" movie.

"While disappointing from Mattel's perspective, it is quite common for studios to move around release dates," Zakaria wrote. 

["We] have no reason to believe at this point that Sony Pictures suspended the production of the movie altogether or that a later release date is off the table."

As for China and the coronavirus, Mattel sources more than half its products come from China. But for now JP Morgan is maintaining its sales estimates, "anticipating no major disruption," the analyst said.