Mattel 2Q profit rises 82 percent on cost-cutting
EL SEGUNDO: Toy maker Mattel Inc. said Friday sales of Barbie and other toys sank in the second quarter, but profit rose 82 percent, beating analyst expectations, as the company reduced expenses.
The better-than-expected results sent shares up 73 cents, or 4.5 percent, to $16.92 during morning trading. The stock has traded between $10.36 and $21.95 during the last 52 weeks.
Profit for the quarter ended June 30 totaled $21.5 million, or 6 cents per share, up from $11.8 million, or 3 cents per share, last year.
Revenue fell 19 percent to $898.2 million from $1.11 billion. The stronger dollar hurt sales by about 5 percentage points.
Analysts polled by Thomson Reuters predicted Mattel would break even on a per share basis on revenue of $969.7 million.
During a conference call with analysts, CEO Robert A. Eckert said the sales decline was caused by continued cautious retailer ordering, fewer toys geared to summer movies and the stronger dollar.
Looking forward to the all-important holiday season — when toy makers make up to 50 percent of annual sales — Eckert said that while it is impossible to know how the holidays will play out, toy makers and retailers will be more prepared for the weak economy.
"Unlike last year, we had more time to plan the environment," he said. "We're managing the infrastructure, we're managing advertising expense, we're managing the cost to recognize that revenues are going to be a challenge, but we don't want that to hold us back."
The second-quarter, while a seasonally small quarter, is typically a key shipping period for summer movie-related products. Last year's second quarter was boosted by toys related to movies including "The Dark Knight," "Speed Racer" and "Kung Fu Panda."
This year, however, rival Hasbro Inc. is making toys for some of the biggest summer movies, including "Transformers: Revenge of the Fallen" and the upcoming "G.I. Joe: The Rise of the Cobra."
U.S. sales fell 12 percent while international sales fell 26 percent, hurt by the stronger dollar.
Mattel girls and boys brands sales, which includes Barbie, High School Musical and Polly Pocket toys, among others, fell 25 percent during the quarter. Sales of Barbie fell 15 percent, mainly due to lower international sales, and sales of Hot Wheels fell 10 percent.
Core Fisher-Price sales fell 13 percent. The American Girl business fared somewhat better, with flat quarterly sales.
Wachovia analyst Timothy Conder said Mattel had "a very solid quarter" as the company managed to improve gross margin despite lower sales. He "strongly" reiterated his Outperform rating.
Toy makers such as Mattel and rival Hasbro Inc. have been raising prices because of higher commodity costs and cutting expenses and culling inventory due to the weak economy.
Mattel has worked to improve its supply chain, cut the number of items it is developing and reduced capital spending on all but critical projects. Last year it eliminated 1,000 jobs to cut costs.
During the quarter, advertising and promotion expenses was down 23 percent at Mattel, while other selling and administrative expenses were trimmed by 18 percent. Mattel expects to save $80 million to $100 million in 2009 and $180 to $200 million throughout 2009 and 2010 via its cost-cutting program.
Legal expenses were $22 million lower for the company during the quarter, due to lower costs related to its long-running feud with MGA over Bratz dolls and less recall-related litigation.
Hasbro reports second-quarter earnings on Monday.