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Mattel (MAT) Up 16.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·4 min read

A month has gone by since the last earnings report for Mattel (MAT). Shares have added about 16.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Mattel due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Mattel Q3 Earnings & Sales Beat Estimates

Mattel reported third-quarter 2020 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Both the metrics beat the consensus estimate for the second straight quarter.

The company reported adjusted earnings per share of 95 cents, comfortably beating the Zacks Consensus Estimate of 38 cents. In the prior-year quarter, the company reported adjusted earnings per share of 26 cents.

Sales Discussion

Net sales of $1,631.7 million surpassed the Zacks Consensus Estimate of $1,462 million. Moreover, the top line rose 10% year over year. On a constant-currency basis, sales increased 11% from the prior-year quarter.

In North America, gross sales were up 13%, both on a reported and constant-currency basis. This can primarily be attributed to increase in sales in Dolls, Action Figures, Building Sets, Games, and Other (comprising Star Wars: The Child plush, card games, including UNO, Jurassic World, and Pictionary, partially offset by Toy Story 4), and Vehicles (including Hot Wheels and CARS). The improvement was marginally negated by decline in Infant, Toddler, and Preschool (comprising Fisher-Price Friends and Fisher-Price and Thomas & Friends).

In the International region, gross sales rose 7% (as reported), owing to increase in sales in Dolls (including Barbie), Action Figures, Building Sets, Games, and Other (including Scrabble, card games, including UNO, and Jurassic World, partially offset by Toy Story 4), and Vehicles (including Hot Wheels). Moreover, gross sales increased 10% in constant currency.

Brand-Wise Worldwide Sales

Mattel, through its subsidiaries, sells a broad range of toys. These items are grouped under different brands — Barbie, Hot Wheels, Fisher-Price and Thomas & Friends and Other.

As reported, worldwide gross sales at Mattel Power Brands were up 11% to $1,818.4 million year over year. The metric rose 11% on a constant-currency basis. Moreover, the Barbie brand witnessed an improvement of 29% on reported basis and 30% on constant-currency basis. Gross sales at the Hot Wheels brand rose 7% on a reported basis and 9% on constant-currency basis. However, gross sales were down 2% on reported basis and 1% on constant-currency basis at the Fisher-Price and Thomas & Friends brands. Gross sales at Other increased 6% on reported basis and 7% on constant-currency basis.

Operating Results

Adjusted gross margin expanded 410 basis points to 51%, driven by the incremental realized savings from cost savings programs and decline in royalty expense and favorable category mix.

Adjusted other selling and administrative expenses declined 6% to $345.7 million. The improvement can primarily be attributed to benefits from Structural Simplification savings.

Balance Sheet

As of Sep 30, 2020, the company’s cash and equivalents were $452.2 million compared with $630 million as of Dec 31, 2019. Total inventories as of the end of the third quarter were down 5.4% year over year to $663.6 million.

The company’s long-term debt was $2,852.8 million as of Sep 30, 2020, higher than $2,846.8 million as of Dec 31, 2019. Shareholder’s equity was $404.5 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -26.49% due to these changes.

VGM Scores

Currently, Mattel has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Mattel has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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