Mattel Beats on Q2 Earnings, Currency Headwinds Mar Sales - Analyst Blog

After incurring loss in the first quarter of 2015, Mattel Inc. MAT posted earnings in the second quarter, possibly on lower costs and improved performance at Fisher Price brand. However, weak performance of the Barbie brand and currency headwinds continued to take a toll on its revenues. Revenues fell in Domestic as well as International markets due to currency headwinds.

Earnings & Revenue Discussion

Mattel’s adjusted earnings came in at 1 cent per share as against the Zacks Consensus Estimate of a loss of 5 cents. However, it compared unfavorably with earnings of 3 cents in the year-ago quarter. The downside reflects soft sales and higher expenses.

Adjusted earnings exclude costs related to integration and acquisition and intangible asset amortization expense related to Mega Brands and severance expenses.

 

Mattel - Quarterly EPS | FindTheBest

Due to currency headwinds, revenues of $988.2 million declined 7% year over year. Also, it missed the consensus mark of $1,000.0 million by 1.2%. On a constant currency basis, revenues were flat year over year due to a decline in sales at Barbie brands and Monster High brands, partially offset by growth in Fisher-Price and American Girl brands.  

Quarter Highlights

Gross sales from North America (including the U.S., Canada and American Girl) fell 3% while sales from International region fell 10% due to currency headwinds. However, on a constant currency basis, gross sales from North America fell 2% due to lower sales at Monster High. Meanwhile, International region gross sales were up 5% as strong growth in Russia was partially offset by weak performance in some western European markets and the Latin American region.

The company reports under four segments, namely Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands and Construction and Arts & Crafts Brands.

Worldwide gross sales at Mattel Girls & Boys Brands fell 12.6% year over year to $601.8 million due to a 19% decline in Barbie sales, 17% decline in the Other Girls brand and 24% decline in the Entertainment business. However, these declines were partially offset 15% increase in revenue at Wheels category.

Sales at Fisher-Price Brands, which includes Fisher-Price Core, Fisher-Price Friends and Power Wheels brands continued to grow for the second consecutive quarter. Total revenue at Fisher-Price Brands grew 2% year over year to $336.8 million. The increase reflects continued strength at Baby Co business and Thomas. However, these positives were partially offset by a decline in sales at Fisher-Price brands properties.

Gross sales at American Girl Brands were $84.2 million, up 1% year over year, thanks to the re-launch of Be Forever historical lines in late 2014 as well as the beginning of the Truly Me product line.

Gross sales from the Construction and Arts & Crafts Brands, which includes the Mega Bloks and RoseArt brands, were $64.8 million, up approximately 5%. The company stated that the performance of the construction business was in line with its expectations in the first half of the year.

Adjusted gross margin was 47.9%, up 70 basis points (bps) year over year on price increases and cost savings initiatives. Selling and administrative expenses as a percentage of net sales were 34.9%, up 70 bps. Meanwhile, adjusted operating income was $23.0 million, down approximately 40% year over year.

The Flagship Brands – Barbie and Fisher Price in 1H

Barbie’s Point of Sale (POS) in the first half of the year was up slightly on a global basis driven by double digit gains in the U.S due to an improved retail inventory situation and integration of new brand campaigns. However, it was partially offset by a mid-single digit decline in international markets as it is still impacted by the weak performance of the Frozen brand and slower rollout of the new brand campaign. Also, Monster High’s POS remained challenging. However, Ever After High continues to gain traction in most existing international markets.

Meanwhile, POS at Fisher-Price brands was up in mid-single digits in the first half driven by positive POS for the baby business in the U.S. and double-digit gains in international markets. The company witnessed strong performance for Thomas as well as Hot Wheels in the U.S as well as international markets in the first half of the year.

Guidance for 2015

Mattel continues to expect strengthening of the U.S dollar to negatively impact results in the second half of the year.

The company expects advertising as a percentage of net sales to increase in 2015. It expects adjusted SG&A expenses to be down in constant currency in 2015 owing to costs saving initiatives.

In fact, the company expects to deliver gross savings of $125.0 million in 2015, primarily in the second half of the year and savings at the higher end of the range of $250.0 to $300.0 million by the end of 2016.

Mattel presently has a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the industry include Activision Blizzard, Inc. ATVI, Electronic Arts Inc. EA and JAKKS Pacific, Inc. JAKK. All these stocks sport a Zacks Rank #1 (Strong Buy).

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