JAKKS Pacific Inc. (JAKK), a multi-brand company that designs and markets a broad range of toys and consumer products, is slated to release its second quarter 2011 results on Wednesday, July 20, before the opening bell. The current Zacks Consensus Estimate for the quarter is pegged at 15 cents per share, which reflects an annualized negative growth of 9.56%. The current Zacks Consensus Sales Estimate for the second quarter is $129 million.
With respect to earnings surprises over the trailing four quarters, JAKKS has outperformed the Zacks Consensus Estimate in all the trailing four quarters. The earnings surprise ranges from 2.5% to 240.0%, with the average at 69.4%. This indicates that the company has surpassed the Zacks Consensus Estimate by the same magnitude over the last four quarters.
First Quarter Recap
JAKKS reported a loss of 39 cents per share in the first quarter of 2011, narrower than the Zacks Consensus Estimate of a loss of 40 cents but wider than the year-ago loss of 37 cents per share.
Despite witnessing a decline in net sales, earnings benefited from the company’s cost-cutting and restructuring activities.
The company reported revenues of $72.3 million in the quarter, down 6.5% year over year. Quarterly revenues, however, surpassed the Zacks Consensus Estimate of $67.0 million.
Gross margin expanded 100 basis points (bps) to 33.6%, despite persistent cost pressures and a shift in product mix. Selling, general and administrative expenses grew 4.7% year over year to $29.2 million.
Outlook
JAKKS expects to report net sales in the range of $770.0 to $775.0 million for fiscal 2011, with earnings ranging from $1.32 to $1.35 per share.
Estimates Revisions Trend
Estimates have not budged in the last 60 days, implying that the analysts are maintaining their outlook post first quarter earnings. The current Zacks Consensus Estimate is pegged at $1.41 for 2011 (reflecting a year-over-year negative growth of 10.9%) and $1.62 for 2012 (reflecting a year-over-year growth of 15.2%).
Agreement of Estimate Revisions
There has been no movement in the analysts’ estimates regarding the company’s earnings over the last 30 days due to the absence of any meaningful catalyst to drive the estimates up or down.
Magnitude of Estimate Revisions
Over the last 60 days, there has been no change in the earnings estimate of 15 cents, $1.41 and $1.62 for the second quarter, fiscal 2011 and fiscal 2012, respectively, which implies that the analysts expect the company to report in line.
Our Take
Currently, we expect JAKKS to post second quarter results in line with the estimates. Business for most of the toy companies including JAKKS is highly seasonal with most of the revenue coming in the third quarter and particularly in the fourth quarter, the holiday season.
The company’s product line in 2011 seems impressive compared with the previous year. Management remains optimistic about the Disney Princess and Fairy product lines, and expects to witness substantial growth from Phineas and Ferb, Club Penguin, and Toy Story products.
We expect the company’s Halloween business to outperform given an expanded product line. 2011 seems more lucrative in terms of property release. The relaunch of Pokémon and three major movie properties are slated in 2011, including Pirates of the Caribbean: On Stranger Tides, Smurfs and Real Steel. Additionally, the company’s restructuring plan and cost-saving initiatives are expected to improve profitability for 2011 and beyond.
JAKKS is also taking initiatives to strengthen its international business. Ventures in the UK, Spain and France are gaining momentum. One overseas property of JAKKS, which is presently drawing considerable attention, is Monsuno. This is an animated Japanese television series, likely to come on air in spring 2012.
We have a Neutral rating on JAKKS based on its long-term growth potential with new product launches, improved earnings on the back of cost-saving measures, resolution of litigation and a strong financial condition to facilitate growth. However, we remain cautious on the stock owing to still-faltering consumer confidence, labor shortage in Asia and increased input costs. Moreover, competition from private label toys and video game industry is increasing.
One of JAKKS’ primary competitors, Mattel Inc. (MAT) has reported second quarter 2011 earnings of 23 cents, which surpassed the Zacks Consensus Estimate of 16 cents per share. Another competitor Hasbro Inc. (HAS) reported second quarter 2011 earnings of 42 cents, beating the Zacks Consensus Estimate of 38 cents.
HASBRO INC (HAS): Free Stock Analysis Report
JAKKS PACIFIC (JAKK): Free Stock Analysis Report
MATTEL INC (MAT): Free Stock Analysis Report
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