Mattel Posting Great Results Despite Challenges

| About: Mattel, Inc. (MAT)

Despite the slow growth in the gaming and toy industry due to a change in consumer taste - with children attracted toward more sophisticated video games and electronic toys - Mattel Inc. (NASDAQ:MAT), the world's largest toy maker, posted extraordinary financial results in the first quarter of 2013.

The company reported that its net income more than quadrupled to $38.5 million from $7.8 million a year ago. The company has earned $0.11 per share in the first quarter as compared to $0.02 per share. The results also beat analysts' expectations. This is a great start from the company, which indicates the company's strength in its global portfolio of brands, countries and customers.

For the first quarter the company has reported that its global net sales jumped 7 percent to $995.6 million, up from $928.4 million last year. Sales in North American regions grew 5 percent, whereas international region gross sales jumped 9 percent, including 200 basis points impacted by changes in currency exchange rates. The company's operating income for the quarter was $65.8 million, compared to the prior year's quarter operating income of $28.7 million.

Worldwide gross sales for its girls' & boys' brands were up 11 percent to $692.2 million. Barbie sales fell 2 percent, but higher sales from the Monster High brand drove the total girls' brands category up to 56 percent globally. Monster High dolls managed to achieve the No. 2 position in just three years of existence. Barbie is still the leading doll in the industry.

Global sales of Wheels Brands including Hot Wheels, Matchbox, and Tyco R/C were down by 2 percent. Global sales for Fisher-Price brands including Fisher-Price core, Fisher-Price Friends and Power Wheels brands were down 7 percent to $287.3 million versus last year. American Girl Brands global sales, which offers American Girl branded products directly to consumers, were $100.5 million, an increase of 32 percent from a year ago. This was driven by growing core doll segments, led by Saige, 2013 Girl of the Year, and a strong performance at three new stores opened in 2012.

Mattel continued to outperform its competitors with its Operational Excellence 3 program. The company reduced costs by focusing on packaging optimization, enhancing manufacturing efficiencies and improving operational efficiencies. In 2012 the company managed to save $148 million using its Operational Excellence 2 program.

Cash flows used for operating activities were $62 million, as compared to net cash flows of $171 million from operating activities in 2012. The change is mainly due to higher working capital usage, partially offset by higher net income. Cash flows used for investing activities was $66 million compared to $637 million in same quarter of 2012, driven by the acquisition of HIT Entertainment in the prior year. Cash flows from financing and other activities was $52 million, compared to cash flows used for financing and other activities of approximately $53 million in 2012. The change was mainly due to the net proceeds received from the issuance of long-term debt, which was partially offset by repayments of long-term debt and higher dividend payments.

As a result of its extraordinary financial performance in the first quarter, Mattel's Board of Directors declared a cash dividend of $0.36 per share for the second quarter. The dividend will be payable on June 14, 2013 to stockholders of record on May 23, 2013. The dividend represents a 16% increase over the previous year's dividend. The company also repurchased 240,000 common shares at a cost of $9 million. The increase in the dividend shows the company's confidence in its business.

It is important to note that the first quarter of the year is usually a slow quarter for toy makers because the companies are coming out of the holiday season. But Mattel's better-than-expected first-quarter results clearly indicate growth in the toy industry. So I think investors should invest in this company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.