Mattel Inc.(MAT) reported first-quarter 2011 earnings of 5 cents per share, in line with the Zacks Consensus Estimate, but missed the prior-year quarter earnings of 7 cents. The year-over-year earnings dropped due higher cost, but the company witnessed strong sales from its brands including Barbie, Hot Wheels and Other Girl Brands.
Quarter Highlights
During the quarter, net sales were $951.9 million, up 8% year over year and also above the Zacks Consensus Estimate of $907 million. Net sales included favorable foreign currency impact of 1%. Worldwide gross sales were $1,041.1 million, ahead of $960.3 million recorded in the prior-year period. U.S. gross sales improved 7% year over year and international gross sales rose 10% year over year.
Worldwide gross sales for the Mattel Girls & Boys Brands business unit were up 15% year over year to $656.4 million. Worldwide gross sales for Barbie (up 14%), Other Girls Brand (up 38%) and Hot Wheels (up 6%) witnessed significant upside. However, Fisher-Price Brands sales dropped 2% to $309.9 million while the American Girl line grew 4% to $73.0 million.
Gross profit rose 10% from the prior-year quarter to $473.1 million and gross margin expanded 60 basis points (bps) year over year to 49.7% due to a 60 bps plunge in cost of sales. However, operating income plummeted 19% to $36.8 million and operating margin contracted 120 bps to 3.9% due to higher other selling and administrative expense ( up 190 bps).
Financial Position
At the end of first quarter, cash and cash equivalents were $1.05 billion compared with $1.28 billion in the first quarter of 2010. Long-term debt was $950.0 million versus $700.0 million in the first quarter of 2010.
The company’s debt-to-total-capital ratio was 32.3% at the end of reported quarter. As of March 31, 2011, shareholder’s equity was $2.5 billion versus $2.6 billion as of December 31, 2010.
The board also declared its second quarterly cash dividend of 23 cents per share, reflecting an annual dividend of 92 cents, a 11% rise over last year.
Our Take
The company reported results within expectations and we do not expect estimates to move up significantly in the coming days.
We have a Neutral rating on Mattel over the long term as it has an industry leading position, a strong balance sheet and is reaping benefits from its cost containment initiatives. Its focus on top-line growth, margin expansion, building new franchises, optimizing entertainment partnerships, expanding international footprint and effective cash deployment also augur well.
However, we remain cautious on the stock on account of increasing input costs and competition from private label toys and the video game industry.
Mattel currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.
One of Mattel’s primary competitors, Hasbro Inc. (HAS) reported first-quarter 2011 earnings per share of 12 cents, which was below the Zacks Consensus Estimate of 17 cents and way below 40 cents earned in the year-earlier quarter. The year-over-year decline was partly due to tough comparisons as first quarter 2010 net earnings included a favorable tax adjustment of 14 cents and increase in costs related to product development.
HASBRO INC (HAS): Free Stock Analysis Report
MATTEL INC (MAT): Free Stock Analysis Report
Zacks Investment Research
