MCA Profit Shot Down by $35-Million Toy Gun Charge
Zapped by a faulty toy gun that shoots paint, MCA Inc. on Thursday reported sharply lower earnings on higher revenue for the second quarter.
Net income plunged 79.5% to $8.1 million from $39.3 million in the second quarter of 1987, while revenue increased 5.3% to $643.6 million from $611.4 million, the company said.
Net income was hurt by a $35-million charge against earnings resulting from a writedown on the company’s inventory of Gotcha! guns and a writedown of its investment in Coleco, the ailing maker of Cabbage Patch dolls that filed for bankruptcy protection July 12.
Many of the $30 Gotcha! guns, which fire paint pellets, were returned to toy stores by customers who complained that the guns didn’t work properly. MCA’s LJN Toy unit no longer makes the guns.
Excluding the effect of the charge, 1988 second-quarter income before taxes would have been about 12% higher than in the same quarter last year, MCA said.
MCA’s stock fell $1 a share Thursday in New York Stock Exchange composite trading to close at $42.125.
MCA’s financial results were no surprise on Wall Street because the company had disclosed the $35-million charge at the end of June, said Harold Vogel, an entertainment analyst with Merrill Lynch.
“I thought it was going to come close to wiping out the profit,” Vogel said. While MCA made money during the quarter, “11 cents (per share) is not a tower of strength,” he said.
Losses Widened
Box-office revenue declined slightly during the quarter, but the filmed entertainment group recorded a 19% jump in operating income to $54.4 million due to stronger results from television syndication and videocassette sales.
The music entertainment group reported operating income of $10.3 million, up from $7.1 million a year ago. Operating income for the book publishing group edged higher to $5.56 million from $5.52 million.
The broadcasting unit’s operating income fell to $2.3 million from $3.8 million. Losses widened slightly for the retail and mail order group to $5.35 million from $5.2 million.
The toy products unit reported a $33.8-million loss, compared to a $3.7-million operating loss in the year-ago period. Excluding the second-quarter charge, the unit would have reported improved results for the quarter, MCA said.
