Mattel Inc (MAT) reported second quarter 2012 earnings of 28 cents per share outpacing the Zacks Consensus Estimate by 7 cents. Reported earnings were also above the year-ago quarter earnings of 23 cents per share. The better-than-expected results were based on solid performance of Other Girls Brands and margin expansion.
Quarter Highlights
During the quarter, net sales remained flat year over year at $1,158.7 million but were higher than the Zacks Consensus Estimate of $1,139.0 million. Net sales included an unfavorable foreign currency impact of 4%. Worldwide gross sales were $1,266.7 million versus $1,264.2 million in the prior-year period. U.S. gross sales inched up 1% year over year while international gross sales fell 1% year over year, due to an unfavorable currency impact of 10%.
Worldwide gross sales for Mattel Girls & Boys Brands business unit declined 1% year over year to $781.6 million, as worldwide gross sales for Entertainment business plummeted 36%, attributed to dip in the Cars 2 movie property. However, worldwide gross sales for the core brands Barbie and Hot Wheels were up 5% and 11%, respectively. Sales for Other Girls Brands shot up 96% driven by Monster High. Fisher-Price Brands sales climbed 2% to $407.3 million while the American Girl line rose 3% to $68.7 million.
Gross profit increased 7% year over year to $594.5 million and gross margin expanded 340 basis points (bps) year over year to 51.3% due to a 240-bp plunge in cost of sales. Operating income enhanced 20% to $131.4 million and operating margin improved 190 bps to 11.3%, due to lower administrative and promotional expenses (down 30 bps), partially offset by a 180-bp rise in other selling and administrative expenses.
Financial Position
As of June 30 2012, Mattel’s cash and cash equivalents were $372.3 million compared with $418.5 million as of June 30, 2011. Long-term debt was $1,150.0 million versus $950.0 million in the year-ago quarter.
The company’s debt-to-total-capital ratio was 38.1% at the end of the reported quarter. As of June 30, 2012, shareholders’ equity was $2.6 billion versus $2.5 billion as of June 30, 2011.
During the quarter, Mattel repurchased 70,000 shares for approximately $2 million and declared a quarterly dividend of 31 cents per share payable on September 21 to the shareholders of record as of August 29.
Our Take
After missing the Zacks Consensus Estimate by a penny in the first quarter of 2012, the better-than-expected second quarter results by the toy company was encouraging. Hence, we expect the estimates to go up in the coming days. The Zacks Consensus Estimates for 2012 and 2013 are pegged at $2.38 and $2.67, respectively.
We have a Neutral recommendation on Mattel over the long term as it has an industry leading position, strong balance sheet and is reaping benefits from its cost-containment initiatives. Its focus on top-line growth, margin expansion, building new franchises, optimizing entertainment partnerships, expanding international footprint and effective cash deployment also augur well.
However, we remain cautious on the stock due to increasing input costs, unfavorable fluctuations in currency exchange rate and competition from private label toys and the video game industry.
Mattel currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We reiterate our long-term Neutral recommendation on the stock.
One of Mattel’s primary competitors, Hasbro Inc. (HAS) will report its second quarter 2012 results on July 22, 2012.
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MATTEL INC (MAT): Free Stock Analysis Report
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