Mattel Incorporated’s (MAT) third quarter earnings of 63 cents per share were just a penny short of the Zacks Consensus Estimate of 64 cents. The company had earned 65 cents in the year-ago period. Quarterly results continued to reflect the economic weakness and lack of any movie-based toy lines.

Mattel, however, is focused on controlling its expenses. The company is rigidly managing its inventory and has lowered its advertising costs.

For the quarter, the company reported operating income of $336.5 million versus $315.3 million in the year-ago period.

Worldwide net sales decreased 8% from the prior-year quarter to $1.8 billion. U.S. sales reported a 2% decrease while international sales fell 14%. International locations were negatively impacted by changes in foreign exchange rates.

Worldwide gross sales for the Mattel Girls & Boys Brands business unit were down 10% versus a year ago. Worldwide Barbie sales declined 8% compared to last year, while Fisher-Price declined 6%. However, Hot Wheels were up 9% and the American Girl line increased 4%.

Gross margin was 51.3%, up 510 basis points versus the prior-year period. Administrative expenses increased 300 basis points as a percentage of net sales to 21.5%.

The economic slowdown has severely impacted discretionary consumer spending, which has deteriorated sharply in the U.S. and in many countries around the world. As a result, the balance sheets of toy manufacturers such as Mattel, Hasbro Inc. (HAS) and JAKKS Pacific Inc. (JAKK) have been impacted significantly.

Mattel also continues to feel the impact of the global recession and has recently faced difficulties with respect to margin pressures and deterioration in some of its core brands. The decline was fairly evenly caused by three main drivers: retailers continuing to tightly manage inventory levels, the lack of toys geared to summer entertainment as compared to last year, and the negative effect of foreign exchange.

Though we expect Mattel earnings to benefit from the most important holiday shopping season coming up, we expect the negative impacts to continue and thereby restrict the company’s results.

As one of the dominant companies in the industry, however, the economic downturn may enable Mattel to strengthen its position at the expense of smaller rivals. Consequently, we have a Neutral recommendation on the shares.
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Read the full analyst report on “JAKK”
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