Mattel (MAT)

Q4 2011 Earnings Call

January 31, 2012 8:30 am ET

Executives

Drew Vollero -

Bryan G. Stockton - Chief Executive Officer and Member of The Board of Directors

Kevin M. Farr - Chief Financial Officer

Analysts

Robert W. Carroll - UBS Investment Bank, Research Division

Sean P. McGowan - Needham & Company, LLC, Research Division

Linda Bolton-Weiser - Caris & Company, Inc., Research Division

Eric O. Handler - MKM Partners LLC, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Gerrick L. Johnson - BMO Capital Markets U.S.

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

John Taylor

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

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Previous Statements by MAT
» Mattel Inc. - Shareholder/Analyst Call
» Mattel Inc. - M&A Call
» Mattel's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the Mattel's Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Drew Vollero, Senior Vice President of Corporate Strategy and Investor Relations. Sir, you may begin.

Drew Vollero

Thanks, operator. As you know, this morning, we reported Mattel's fourth quarter and full year financial results. We provided you with a slide presentation to help guide our discussion today. The slide presentation and the information required by Regulation G, regarding non-GAAP financial measures is available on the Investors & Media section of our corporate website, mattel.com.

In a few minutes, Bryan Stockton, Mattel's CEO; and Kevin Farr, Mattel's CFO, will provide comments on the results, and then the call will be opened for your questions.

Certain statements made during the call may include forward-looking statements related to the future performance of our overall business. These statements are based on currently available information, and they are subject to a number of significant risks and uncertainties, which could cause our actual results to differ materially from those projected in the forward-looking statements.

We describe some of these uncertainties in the Risk Factors section of our 2010 Annual Report on Form 10-K, in our 2011 quarterly reports on Form 10-Q and in other filings we make with the SEC from time to time. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so.

Now I'd like to turn the call over to Bryan.

Bryan G. Stockton

Thank you, Drew, and good morning. While I've been a part of this early-morning call for the last year, I am thrilled and excited to be leading this morning's call as Mattel's sixth CEO. I look forward to seeing many of you soon for our Analyst Meeting, scheduled during New York Toy Fair, where Kevin and I will take you through a preview of what's to come in 2012. But this morning, I'd like to focus on a review of our 2011 performance.

As we look back on 2011, several important factors played out throughout the year. We maintained momentum in our core brands, such as Barbie, Hot Wheels, American Girl and our new brand franchise, Monster High, as well as with key entertainment properties, such as Disney Princess and Cars 2. 2011 proved to be a transition year for Fisher-Price, due to the expiration of the Sesame Street license combined with these strategic repositioning of the brand.

The retail environment continued to be cautious throughout 2011, due to retailers' concerns about consumer spending in the uncertain global economic environment. We managed our business accordingly as these events played out during the year. As a result, 2011 was another strong year for Mattel.

For the fourth quarter, sales grew 1% and operating income increased by 16%, driven by strong gross margins and tight cost controls. For the year, we grew revenues by 7% and operating income by 15%.

Throughout the year and particularly in the fourth quarter, we worked closely with our retail partners to ensure that shipping, POS and retail inventories were aligned across our portfolio of brands. This proved to be important as overall holiday sales were consistent with our expectations, but were concentrated later in the all-important fourth quarter than in prior years.

With the success of this effort in 2011, we enter 2012 pleased with the current state of both our inventories and those of our retail partners. In fact, 2011 marks our third consecutive year of solid performance, which I'm especially pleased about given the soft global economic backdrop and the highly promotional environment, particularly in the U.S.

Our portfolio of brands performed across the globe. Our POS grew nicely, and we gained a category share according to NPD's most recent data. In fact, 4 of the top 5 properties for the 2011 holiday season came from the top.

With strong operating results throughout the year, Mattel's business model generated strong cash flow, which we continue to deploy to shareholders. As you already saw on today's press release, we have raised our quarterly dividend by 35%, reflecting an annualized dividend of $1.24. Dividends remained an all-important component in our deployment strategy, a key driver of our TSR and an effective way for us to share the value we are creating with our shareholders.

We also continue to repurchase shares, buying back a total of $536 million for the year and almost $1 billion over the last 2 years. In 2011, we executed against these strategic priorities that we laid out for you in the beginning of the year, which were to deliver consistent growth through continued momentum in core brands, the building of new franchises, optimization of our entertainment partnerships and continued expansion of our international footprint.

Let's start with the core brands. We were very pleased with performance of the Barbie brand as it continued to reign as the #1 property in the toy industry for the holiday season for the fifth consecutive year. Barbie's fall entertainment, Princess Charm School, performed very well versus last year, driven by a well-coordinated marketing efforts around the world across toys, DVDs and consumer products. This year, we also released the third DVD in November entitled, Barbie: A Perfect Christmas with the associated product, which was incremental to last year. And the newly launched, I Can Be campaign, targeting both girls and moms was a success.

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