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Mattel (MAT) Stock Down Despite Q2 Earnings & Revenue Beat

Mattel, Inc. MAT delivered impressive second-quarter 2022 results, wherein earnings and revenues surpassed their respective Zacks Consensus Estimate. The metrics not only beat the consensus mark for the ninth consecutive quarter but also improved on a year-over-year basis.

Despite reporting better-than-expected results, the company’s shares declined 2.4% in the after-hours trading session on Jul 21. Investors’ sentiment was hurt by a decline in gross margin and dismal American Girl segment sales.

After the robust results, Ynon Kreiz, Mattel’s chairman and CEO, stated, “The first half of the year was an outstanding period of growth for the company. We are benefiting from strong retail partnerships and look forward to meeting the projected increase in consumer demand for our product, as we enter the second half of the year and the all-important holiday season. As the owner of one of the strongest portfolios of children’s and family entertainment franchises in the world, we are excited by the opportunities to capture the full value of our IP.”

Earnings & Revenues Discussion

During the second quarter, the company reported adjusted earnings per share (EPS) of 18 cents, compared with the Zacks Consensus Estimate of 5 cents. In the prior-year quarter, the company reported adjusted earnings of 3 cents.

Net sales during the quarter amounted to $1,235.7 million, surpassing the Zacks Consensus Estimate of $1,109 million. The top line rose 20% year over year. On a constant-currency (cc) basis, sales improved 24% from the prior-year quarter.

In North America, gross billings surged 30% (as reported and at constant currency) year over year. This can be attributed to an increase in sales of Action Figures, Building Sets, Games, and Other (including Jurassic World and Lightyear), Vehicles (including Hot Wheels), Infant, Toddler, and Preschool (including Fisher-Price and Thomas & Friends) and Dolls (including Polly Pocket and Barbie). Net sales in the North America segment rose 30% year over year on a reported and cc basis.

In the International segment, gross billings rose 12% (reported) and 20% (cc) year over year. The uptick was driven by growth in Action Figures, Building Sets, Games, and Other (including Jurassic World and Lightyear), Vehicles (including Hot Wheels), and Infant, Toddler, and Preschool (including Fisher-Price and Thomas & Friends), partially offset by Dolls (including Spirit and Cave Club). Net Sales in the International segment increased 12% on a reported basis and 20% at cc year over year.

Mattel, Inc. Price, Consensus and EPS Surprise

Mattel, Inc. Price, Consensus and EPS Surprise
Mattel, Inc. Price, Consensus and EPS Surprise

Mattel, Inc. price-consensus-eps-surprise-chart | Mattel, Inc. Quote

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, Thomas & Friends and Other.

Worldwide gross billings by Mattel Power Brands rose 20% year over year to $1,376.3 million. The metric advanced 24% year over year at cc. The Barbie brand witnessed an improvement of 3% (on a reported basis) and 7% (at cc) year over year. Gross billings at the Hot Wheels brand rose 26% (on a reported basis) and 31% (at cc) year over year. Gross billings at the Fisher-Price and Thomas & Friends brands were up 21% (on a reported basis) and 24% (at cc) year over year. Gross billings at Other increased 28% (on a reported basis) and 31% (at cc) year over year.

Operating Results

Adjusted gross margin contracted 260 basis points year over year to 44.9% due to input cost inflation, other supply chain costs, and increased royalty expense, which was overshadowed by pricing, favorable fixed cost absorption, and savings from the Optimizing for Growth program.

During the quarter under discussion, adjusted other selling and administrative expenses increased by $10 million year over year to $343 million. The increase can primarily be attributed to increased higher employee-related expenses.

Balance Sheet

As of Jun 30, 2022, the company’s cash and equivalents were $274.5 million compared with $384.7 million as of Dec 31, 2021. Total inventories as of the end of the second quarter were up 44% year over year to $1,177.6 million.

The company’s long-term debt was $2,323.3 million as of Jun 30, 2022, lower than $2,839.1 million as of Jun 30, 2021. Shareholders’ equity was $1,728 million.

Outlook

For 2022, the company anticipates net sales to grow in the range of 8-10% at cc. Adjusted gross margin for 2022 is expected at 47-48%. Adjusted EBITDA for 2022 is expected to be $1,100-$1,125 million, suggesting an increase from $1,007 million reported in 2021. Capital expenditures for 2022 are expected to be $175-$200 million. The company anticipates 2022 adjusted EPS of $1.42-$1.48. Its mid-point of $1.45 is below the current Zacks Consensus Estimate of $1.46.

For 2023, the company anticipates net sales to grow in high-single digits on a constant currency basis. Adjusted operating income margin for 2023 is expected between 16% and 17% of net sales. For 2023, the company expects adjusted EPS to be greater than $1.90.

Zacks Rank & Key Picks

Mattel currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Consumer Discretionary sector are G-III Apparel Group, Ltd. GIII, Caleres, Inc. CAL and MGM Resorts International MGM.

G-III Apparel sports a Zacks Rank #1 (Strong Buy). GIII has a trailing four-quarter earnings surprise of 97.5%, on average. The stock has declined 27.9% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for GIII’s current financial year sales and earnings per share (EPS) indicates growth of 12.9% and 10.4%, respectively, from the year-ago period.

Caleres sports a Zacks Rank #1. CAL has a trailing four-quarter earnings surprise of 62.9%, on average. Shares of the company have increased 12.4% in the past year.

The Zacks Consensus Estimate for CAL’s current financial year sales and EPS suggests growth of 4.8% and 0.7%, respectively, from the year-ago period.

MGM Resorts sports a Zacks Rank #1. MGM has a trailing four-quarter earnings surprise of 212.5%, on average. Shares of the company have declined 21.5% in the past year.

The Zacks Consensus Estimate for MGM’s current financial year sales and EPS suggests growth of 27.2% and 240.3%, respectively, from the year-ago period.


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