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Mattel (MAT) Stock Up on Earnings and Revenue Beat in Q3

Zacks Equity Research

Mattel, Inc. MAT has reported better-than-expected third-quarter 2019 results, wherein both earnings and revenues surpassed the respective Zacks Consensus Estimate. While the bottom line beat the consensus estimates for the fifth straight quarter, the top line surpassed the same for the fourth consecutive quarter.

Robust results and conclusion of an investigation of its accounting practices instilled investor optimism, sending the shares of the company surging by 20.5% in after-hour trading session on Oct 29. However, shares of the company’s fell 22.3% over the past year, owing to declining revenues until the first quarter. The industry also recorded a decline of 12.2% in the same period.

The company reported adjusted earnings of 26 cents, which surpassed the Zacks Consensus Estimate of 8 cents and improved 44.4% year over year. The company’s results in the quarter benefited from robust sales of Dolls category and Barbie.

Sales Discussion

Net sales of $1,481.6 million surpassed the consensus mark of $1,421 million and improved 3% year over year. On a constant-currency basis, sales grew 4% from the prior-year quarter.

Worldwide gross sales were up 3% year over year (as reported) and increased 4% at constant currency. In North America, gross sales declined 1%, both as reported and at constant currency.

Meanwhile, in the International region, gross sales increased 10% (as reported), driven by growth in Action Figures, Building Sets and Games (including Toy Story 4), Dolls (including Barbie, Polly Pocket and the launch of BTS, partially overshadowed by owned brands), and Vehicles. This improvement was partially offset by a decline in Infant, Toddler and Preschool (including Fisher-Price Core, and Thomas & Friends). Further, gross sales increased 13% in constant currency.

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 four wide categories — Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

As reported, worldwide gross sales at Mattel Power Brands improved 10% to $721.7 million year over year. The metric increased 13% on a constant-currency basis. Further, the Barbie brand witnessed 10% growth as reported and 12% in constant currency, driven by positive POS momentum. Also, gross sales at the Hot Wheels brand increased 25% on a reported basis and 27% in constant currency. However, gross sales were down 3% as reported and 2% in constant currency at the Fisher-Price and Thomas & Friends brands. Gross sales at Other decreased 6% as reported and 4% in constant currency.

Operating Results

Adjusted gross margin expanded to 46.9% from 43% in the year-ago quarter, buoyed by savings from the Structural Simplification program and lower foreign exchange.

Adjusted other selling and administrative expenses improved 12% to $366 million. The increase was primarily driven by a higher incentive compensation accrual and recovery of Toys “R” Us bad debt in third-quarter 2018.

Balance Sheet

As of Sep 30, 2019, the company’s cash and equivalents were $218.3 million compared with $209.2 million as of Sep 30, 2018. Total inventories as of the end of the third quarter declined 3.4% year over year.

The company’s long-term debt amounted to $2,856.8 million as of Sep 30, 2019, higher than $ 2,849.9 million as of Sep 30, 2018. Shareholder’s equity was $453.7 million.

Mattel, which shares space with Hasbro HAS, Electronic Arts EA and Take-Two Interactive Software TTWO currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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