We are maintaining our long-term Neutral recommendation on Mattel Inc. (MAT), the world’s largest manufacturer of toys.
During the third quarter of 2010, Mattel reported earnings of 77 cents per share, up from 63 cents in the prior-year quarter. Earnings included a tax benefit of 5 cents per share. The results were primarily driven by strong sales from its core brands such as Barbie, solid contribution from Toy Story 3 and World Wrestling Entertainment properties, partly offset by declines in Hot Wheels and Fisher-Price Brands.
Mattel has an industry leading position, a strong balance sheet and continues to benefit from cost containment. Its focus on top-line growth, margin expansion and effective cash deployment also augur well. The company also remains committed to build shareholder value by repurchasing shares and distributing dividend, as a result of which in November, Mattel increased its share repurchase program by an additional $500 million and hiked its annual dividend for 2010 to 83 cents per share from 75 cents per share in 2009.
Additionally, Mattel has implemented modest price increases for some of its product lines and remains focused on achieving its long-term annual goal of 50% of gross margin and 15% to 20% of operating margins. Moreover, the company expects to generate solid sales during the holiday season, which is its fourth quarter, when demand for toys is the strongest.
However, we remain cautious on the stock based on increasing input costs and adverse impact from currency exchange rate. Moreover, competition from private label toys and video game industry is increasing and orders from retailers remain conservative.
In the last 30 days, the estimates have jumped by only a penny for the fourth quarter of 2010 and fiscal 2010, thus indicating no significant catalyst in the near term. Hence, we currently remain Neutral on the stock.
MATTEL INC (MAT): Free Stock Analysis Report
Zacks Investment Research
