Yahoo Finance Will Weak Sales Weigh on Mattel's (MAT) Q4 Earnings? - Analyst Blog
Mattel, Inc. (MAT) is slated to report its fourth-quarter 2014 results before the market opens on Jan 30, 2015. Last quarter, it posted a negative surprise of 6.67%. We note that the company has posted negative earnings surprise in preceding four quarters and has a negative average earnings surprise of 59.8%. Let’s see what is in store this season.
Factors to Consider
Per the preliminary results reported by Mattel on Jan 26, the company expects earnings of 52 cents per share, down 51% year over year. The significant downside reflects sluggish revenues and lower gross margins. Revenues are expected to decline 6% year over year to $1.99 billion possibly owing to a significant decline in sales of Barbie and Fisher-Price, its two flagship brands.
In fact, sluggish performance of the Fisher-Price and Barbie Brands has been a matter of concern for Mattel since the beginning of 2013. Moreover, the rate of year-over-year decline in revenue has increased every quarter owing to weak demand for traditional toys. Increasing inclination of kids toward electronically driven devices has adversely impacted the demand for traditional products. The company expects weakness in both these brands to continue in the upcoming quarter.
Gross margin is also expected to decline 410 basis points to 50.4% in the fourth quarter due to higher expenses related to the acquisition of MEGA Brands while selling general and administrative expenses are expected to increase 390 basis points as a percentage of sales. Owing to higher expenses, operating income is likely to be $237.0 million, down 51% year over year.
Earnings Whispers?
Our proven model does not conclusively show that Mattel is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at -16.33% for Mattel.
Zacks Rank #4 (Sell): We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some other companies in the broader consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Penn National Gaming Inc. (PENN) with an Earnings ESP of +50.00% and a Zacks Rank #1 (Strong Buy).
Choice Hotels International Inc. (CHH) with an Earnings ESP of +2.70% and a Zacks Rank #1.
GoPro, Inc. (GPRO) with an Earnings ESP of +3.23% and a Zacks Rank #2 (Buy).
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