Tag Archives: NASDAQ:MAT

Mattell Inc.: Zacks’ Bear of the Day Play

Cyclical companies look to one specific month or at times one quarter to make the majority of their sales for the entire year.  While this can be nerve wracking for management, these time periods tend to see huge volumes, and can be extremely profitable for the company.  But when merchants slow their buying trends, the company’s input costs increase, and customers reduce their buying activity, margins and revenues get crushed.  This is what happened to Mattel Inc.(MATFree Report) , our Zacks Bear of the Day.

This Zacks Ranked #5 (Strong Sell) company designs, manufactures, and markets a broad variety of family products on a worldwide basis through both sales to retailers and direct to consumers. Mattel’s business is dependent in great part on its ability each year to redesign, restyle and extend existing core products and product lines, to design and develop innovative new products and product lines, and successfully market those products and product lines.

Recent Earnings Results

On January 25th the company posted Q4 16 earnings results where missed both the Zacks consensus earnings and revenue expectations.  The company saw year over year declines in several key areas; worldwide net sales -4%, worldwide gross sales -3%, reported operating income -4%, reported EPS -14.8%, net cash flows from operating activities -19.7%, and gross margins fell by 240 basis points.  On a regional view, the company saw year over year declines; net sales North America -2%, net sales International -8%, and gross sales North America -1%, gross sales International -6%.

Management’s Take

According to Christopher Sinclair, Chairman and CEO, “Our results were negatively impacted by a number of industry-wide challenges, including a significant U.S. toy category slowdown in the holiday period, and increased forex headwinds. And while our sales at retail remained strong, the slowdown triggered elevated retail promotional activity and decreased shipping, all of which had a significant impact on our gross margin.”

Price and Earnings Consensus Graph

As you can see in the price and earnings estimate graph below, 2017 estimates and current stock price have sharply declined.

Mattel, Inc. Price and Consensus

Mattel, Inc. Price and Consensus | Mattel, Inc. Quote

Declining Earnings Estimates

Due to the poor earnings report, earnings estimates for Q1 17, Q2 17, FY 17 and FY 18 have all seen declines over the past 7 days; Q1 17 fell from -$0.07 to -$0.13, Q2 17 slipped from $0.04 to $0.02, FY 17 dropped from $1.71 to $1.43, and FY 18 moved lower from $1.90 to $1.68.

Bottom Line

Mattel, has missed expectations in three out of the last four holiday quarters.  While management has had recent success in stabilizing their core brands, this holiday miss makes the 2017 story a bit murky.  Further, due to the deceleration in retail sell-through in December, retailers limited their orders which caused inventories to increase for Mattel.  This extra inventory will weigh on 2017 sales.

If you are inclined to invest in the Toys/Games/Hobbies segment, you would be best served to wait for a better entry point as every member of the segment has a Zacks Rank #3 (Hold) or lower.

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Mattel: Zacks’ Bear of the Day Play

Mattel, Inc. (MATAnalyst Report) continues to struggle as it enacts a turnaround strategy. This Zacks Rank #5 (Strong Sell) is expected to see falling earnings in 2015.

Mattel makes toys worldwide under the popular brands of Barbie, Hot Wheels, Monster High, American Girl, Thomas & Friends and Fisher-Price.

But it is Barbie that has long dominated and is now struggling as children’s tastes and interests change.

Beat in the First Quarter

On Apr 16, Mattel reported its first quarter results and beat the Zacks Consensus by a penny. Earnings were a loss of $0.08 versus the Zacks Consensus of a loss of $0.09.

Worldwide net sales rose 5% in constant currency.

North American Region gross sales rose 9% in constant currency with International Region gross sales jumping 2% in constant currency.

Some analysts were disappointed by the results of Mattel’s largest brands.

Worldwide gross sales for Barbie fell 5% in constant currency even though retail sales were up on a global basis due to a strong performance in the United States. Internationally, however, retail sales declined.

American Girl brands also were flat compared to the prior year.

Fisher-Price managed to gain 3% in constant currency compared to the prior year.

Full Year Estimates Drop

It’s been a rough few months for Mattel.

The analysts have been cutting their full year estimates on the company throughout the year with 2 even cutting after this latest earnings report.

The 2015 Zacks Consensus Estimate has fallen to just $1.41 from $2.17 just 3 months ago.

Analysts now expect earnings to decline 4.9% in 2015 compared to 2014 as the company institutes changes in personnel and structure while it attempts to turn the company around.

Shares Sink But Still Aren’t Cheap

Shares have been sinking for most of the last year but started to turn around in April.

But if you thought maybe you might get the shares on sale, think again.

Mattel is still trading with a forward P/E of 19.3 which makes it more expensive than the S&P 500 which averages a P/E around 18.

The toy industry is struggling. It ranks in the bottom 26% of Zacks Rank Industries.

But if you must buy a toy maker right now, you should consider Hasbro Inc. (HASAnalyst Report). It’s a Zacks Rank #3 (Hold) and while it doesn’t have a great growth outlook for 2015 either, at least it’s expected to grow earnings by 5.3% instead of see contraction.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

Mattel: Zacks’ Bear of the Day Play

It has been extremely rough as of late for some toymakers as the world goes increasingly digital. Companies are now forced to find tie-ins to movie or TV franchises in order to keep their brands in the public eye and boost sales.

Some companies in this space have been successful lately with this strategy, such as Hasbro (HAS – Analyst Report) and their Transformers brand. Others, however, have struggled to do this and are also seeing their more ‘traditional’ toys fall by the wayside too. This is especially the case for a classic toy company which is going through an extremely bad rough patch, Mattel (MAT – Analyst Report).

Mattel in Focus

Mattel was founded in 1945 and is headquartered in Segundo, California. The company has a ton of world famous brands including Fisher-Price, Hot Wheels, and of course, Barbie. While the stock was a strong performer in years past, consumers seem to be tiring of many of the firm’s all-star brands in recent years, leading to many questions about how Mattel can revive interest in its products.

These worries are especially prevalent following the company’s most recent earnings report. The company saw extremely weak revenue figures across a number of segments, leading to a huge earnings miss of over 84%.

Recent Earnings

In particular, Mattel saw a 17% decline for Fisher-Price Brands, while Mattel Girls & Boys Brands declined 13% (year-over-year). The main culprit for this decline was easily the Barbie brand—which is in the Mattel Girls & Boys Brands segment—as this declined 15%. And thanks to this decline, sales for Barbie have fallen in eight of the last 10 quarters, further underscoring that this isn’t a one quarter speed bump.

If that wasn’t enough, investors should also note that gross margins were also an issue for MAT in the most recent quarter. Margins were down 490 basis points to 46.4%, while operating profits barely squeaked by into the green, sparing MAT from having two quarters of losses in a row.

Estimates & Analyst Opinion

This earnings miss actually marks the third straight miss for MAT. And it isn’t like Mattel is just barely missing expectations either, as each of these misses have been by double digits, while the past two (including the most recent one) were misses of at least 84%.

Given these factors and the declining sales trends for many of its key brands, analysts have had no choice but to cut their earnings estimates for MAT stock. In fact, not a single estimate has gone higher in the past sixty days for either the current year, next year, or current quarter time periods.

The magnitude of these estimate cuts have also been pretty severe, as MAT is now expected to earn just $1.02/share today for the current quarter, down from $1.17/share 30 days ago. Meanwhile, for the current year, estimates have fallen from a $2.47/share consensus 60 days ago to a $2.17/share consensus today, pushing MAT’s projected growth rate to a contraction of nearly 16% year-over-year.

For these reasons, it shouldn’t be too surprising to note that MAT currently has a Zacks Rank #5 (Strong Sell), and that we are looking for more underperformance from this stock in the months ahead.

Other Picks

If you want to stay in the toy/game industry though, there are a handful of better ranked picks out there. Hasbro, for example, currently has a Zacks Rank #2, and may be better positioned thanks to the revival of many of its brands.

Beyond that, there are a number of game studios such as Take-Two Interactive (TTWO – Snapshot Report) or Electronic Arts (EA – Analyst Report) which both receive ‘buy’ ranks. Either of these would also help investors to go more along the digital route in the toy/game industry, and potentially avoid some of the main problems that MAT is facing, and struggling with, right now.

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