Mattel Inc. (MAT) reported fourth quarter 2010 earnings of 89 cents per share, which surpassed the Zacks Consensus Estimate of 86 cents and was in line with the prior-year quarter earnings. The better-than-expected results were primarily driven by strong sales from its core brands such as Barbie and Fisher-Price, partly offset by declines in Hot Wheels sales as well as cost escalation.
The company’s full-year earnings per share were $1.86, above the Zacks Consensus Estimate of $1.83 and up 28% from the prior year.
Quarter Highlights
Worldwide gross sales were $2,327.4 million, ahead of $2,146.2 million recorded in the prior-year period as well as the Zacks Consensus Estimate of $2,074 million. Including the negative impact of foreign currency fluctuations, net sales reported were $2,124.6 million, up 9% year over year. U.S. gross sales improved 11% year over year and international gross sales increased 6% year over year.
Worldwide gross sales for the Mattel Girls & Boys Brands business unit were up 9% year over year to $1,265.2 million. Worldwide gross sales for Barbie spiked 8% over the last year while Hot Wheels was down 4%. Fisher-Price Brands sales jumped 6% to $775.8 million while the American Girl line grew 8% to $273.2 million.
Gross profit rose 5% from the prior-year quarter to $1,096.0 million and operating income was up 3% to $428.6 million. The year-over-year improvement was attributed to higher sales.
However, gross margin dropped 180 basis points year over year to 51.6% and operating margin contracted 110 bps to 20.2% due to higher advertising expenses (up 50 bps), partially offset by lower SG&A expenses (down 10 basis points) as a percentage of sales.
Fiscal Year Performance
Worldwide gross sales were $6,386.6 million in 2010 compared with $5,934.3 million in 2009. Including the negative impact of foreign currency fluctuations, net sales rose 8% year over year to $5,856.2 million. U.S. gross sales jumped 9% year over year and international gross sales grew 6% year over year.
Worldwide gross sales for the Mattel Girls & Boys Brands business unit were up 11% year over year to $3,660.5 million. Worldwide gross sales for Barbie inched up 7% over the last year while Hot Wheels was down 2%. Fisher-Price Brands sales leaped 2% to $2,220.5 million while the American Girl line grew 5% to $486.6 million.
Gross margin expanded 50 basis points year over year to 50.9% and operating margin enhanced 190 bps to 15.4%, driven by cost-saving initiatives.
Financial Position
At year end, cash and cash equivalents were $1.28 billion compared with $1.1 billion in 2009. Long-term debt was $950.0 million versus $700.0 million in the year-ago period.
The company’s debt-to-total-capital ratio was 31.3% at the end of 2010. As of December 31, 2010, shareholder’s equity was $2.6 billion versus $2.5 billion as of December 31, 2009.
The board also declared a first quarter cash dividend of 23 cents per share, reflecting an annual dividend of 92 cents, a 11% rise over last year.
Outlook
In 2011, Mattel plans to accelerate its performance by focusing on cost-control initiatives, implementing a new organizational structure, generating significant cash flow and ensuring effective cash deployment.
Our Take
The company reported better-than-expected results and we expect estimates to move up in the coming days. Mattel has an industry-leading position, a strong balance sheet and continues to focus on top-line growth and margin expansion.
Mattel currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation on the stock also remains Neutral.
One of Mattel’s primary competitors, Hasbro Inc. (HAS) is expected to announce its fourth quarter results on February 7, 2011.
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