Mattel Beats 3Q Estimates by a Penny

| About: Mattel, Inc. (MAT)

Mattel Inc. (NASDAQ:MAT) reported third quarter 2010 earnings of 77 cents per share, surpassing the Zacks Consensus Estimate by a penny. Earnings included a tax benefit of 5 cents. In the prior-year quarter, Mattel earned 63 cents a share.

However, worldwide gross sales were $1996.9 million, ahead of $1955.9 million recorded in the prior-year period as well as the Zacks Consensus Estimate of $1940.0 million. Including the negative impact of foreign currency fluctuation, net sales were reported at $1833.1 million, up 2% year over year. US gross sales improved 3% year over year and international gross sales increased 2% year over year.

Third quarter earnings were primarily driven by strong sales from its core brands such as Barbie, solid contribution from Toy Story 3 and World Wrestling Entertainment properties, partly offset by decline sin Hot Wheels and Fisher-Price Brands as well as cost escalation.

Behind the Headline Numbers

Worldwide gross sales for the Mattel Girls & Boys Brands business unit were up 8% year over year to $1169.1 million. Worldwide gross sales for Barbie spiked 6% over the last year, while Hot Wheels was down 3%. Fisher-Price Brands sales decreased 5% to $743.4 million, while the American Girl line grew 2% to $84.4 million.

Mattel Girls & Boys Brands benefited from the outperformance of the Disney Princess and the introduction of the Monster High doll line. The decline in Fisher-Price Brands was mainly due to a decrease in Fisher-Price and Power Wheels where as rise in American Girl was mainly driven by new openings of two boutique stores, as well as the launch of the My American Girl line.

Gross margin was 51.1%, slightly down from 51.3% recorded in the comparable period of last year. The company reported an operating income of $358.6 million, up 7% year over year. The year-over-year improvement was attributed to higher sales, lower SG&A expenses (down 90 basis points) and flat advertising expenses as a percentage of sales.

Financial Position

At quarter-end, cash and cash equivalents were $960.5 million compared with $323.7 million in the year-ago period. Long-term debt was $960.0 million versus $710.0 million in the year-ago quarter.

During the quarter, Mattel issued $500 million of senior unsecured notes, the proceeds of which will be used to pursue general corporate expenses, including paying off $260 million of long-term debt maturities over the next year. The company’s debt-to-total-capital ratio was 29.8% at the end of the quarter.


With a holiday-season coming ahead, Mattel expects to post strong numbers in its forthcoming quarter. Mattel currently retains the Zacks #3 Rank, which translates into a short-term Hold rating.

Disclosure: No position