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Mattel (MAT) Q3 Earnings Meet, Revenues Beat; Stock Gains

Shares of Mattel Inc. MAT rallied nearly 6% in afterhours trading on Oct 19, after the company posted strong third-quarter 2016 results.

Earnings & Revenue Discussion

Adjusted earnings of 70 cents per share were in line with the Zacks Consensus Estimate and remained flat year over year (y/y). Notably, adjusted earnings exclude severance and restructuring expenses.

Revenues of $1.8 billion were up 2% y/y on a constant currency basis and beat the consensus mark of $1.77 billion by nearly 1.7%. Sales remained flat y/y, including the impact of foreign currency.

Quarter Highlights

Worldwide gross sales were flat y/y as the increase in gross sales of other brands was partially offset by the decline at Mattel Girls & Boys Brands. At constant currency, gross sales were up 1%.

Gross sales in North America (including the U.S., Canada and American Girl) were up 1%, while that in the International region tumbled 3%, mainly due to currency headwinds. Meanwhile, on a constant currency basis, gross sales in North America and the International region inched up 2% and 1%, respectively.

Notably, gross margin in the reported quarter decreased 60 basis points to 48.5% from 49.1% recorded in the year-ago quarter, largely due to currency headwinds.

Meanwhile, adjusted operating income for the quarter was $324.1 million, higher than the prior-year quarter figure of $317.4 million, due to higher revenues.

MATTEL INC Price, Consensus and EPS Surprise

MATTEL INC Price, Consensus and EPS Surprise | MATTEL INC Quote

Segment Details

The company reports results under four segments, namely, Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

At constant currency, worldwide gross sales at Mattel Girls & Boys Brands declined 4% to $1.06 billion y/y on the back of a 46% plunge in the Other Girls brand. However, a 17% surge in Barbie sales, 6% increase in the Wheels category and 16% growth in the Entertainment business, in constant currency, somewhat offset the losses.

Gross sales at Fisher-Price Brands, which includes Fisher-Price Core, Fisher-Price Friends and Power Wheels, climbed 8% y/y to $661.5 million at constant currency.

Gross sales at American Girl Brands were $125.5 million, up 15% from the year-ago quarter on a constant currency basis.

Gross sales at Construction and Arts & Crafts Brands, which includes the Mega Bloks and RoseArt brands, were $118.6 million, up 6% from third-quarter 2015 at constant currency.

Fourth-Quarter 2016 Guidance

In the fourth quarter, the company’s focus remains on delivering operating profit by balancing the top line and managing the middle of the P&L. As the unfavorable impact of Forex lessened in the third quarter, the trend is expected to continue in the fourth quarter.

Mattel aims to achieve a fourth quarter gross margin rate of around 51% which is a challenge but well within the ranges it has achieved in the past. The company believes that improvement in gross margin could be supported by what they are already experiencing in terms of incremental volume, improved mix, stronger trends in some brands, incremental flow-through from their supply chain and other cost savings initiatives.

2016 Guidance

Mattel continues to expect net sales growth to be more or less flat in 2016, on a constant currency basis.
The company aims to achieve a full-year 2016 gross margin of about 48.5%. It continues to expect adjusted SG&A savings to meet the lower end of the guidance of $55–$65 million for 2016. The company anticipates continuing cost savings to mitigate overhead expenses from the Fuhu and Sproutling acquisitions and is working hard to achieve full year adjusted SG&A of about $1.4 billion.  

Zacks Rank and Stocks to Consider

Mattel currently sports a Zacks Rank #1 (Strong Buy).

Other well-performing stocks in the broader consumer discretionary sector include Electronic Arts, Inc. EA, Nintendo Co. Ltd. NTDOY and Boyd Gaming Corporation BYD.

Electronic Arts’ current year growth estimate is pegged at 16.2% compared with the industry average of 9.6%. The company currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nintendo carries a Zacks Rank #2 (Buy). Its current year growth estimate of 184.4% is much higher than the industry average of 9.6%.

Boyd Gaming also carries a Zacks Rank #2. Its long term growth estimate is pegged at an impressive 37.6% compared with the industry’s expectation of 12.1%.

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