Mattel Chief Out to Show Expansion Isn’t Make-Believe
Mattel Inc. CEO John Amerman is on a roadshow for big investors this week, talking up the toy giant’s prospects. He’s promising double-digit earnings growth in the third and fourth quarters, and the message is falling on receptive ears in this still-lousy economy.
Mattel stock rose $1 on Wednesday and $1.625 on Thursday, closing at $27.50--just shy of its 1991 peak of $27.625 reached earlier this year.
Amerman gave his bullish outlook to analysts in Boston and New York this week, and he’s now on his way to Europe to do the same. His speech continues a long, arduous campaign to erase Wall Street’s lingering suspicions about the El Segundo-based company’s ability to grow at a steady pace.
For most of the 1980s, Mattel and other toy companies suffered through one boom-and-bust cycle after another as they bet heavily on fad toy trends--ideas that missed as often as not.
But since 1987, Mattel has forsaken fad chasing to concentrate on building a global business in its core line of Barbie, P. J. Sparkles and other dolls. Barbie’s perpetual success has allowed Mattel to rebuild rapidly from the shambles of the ‘80s.
The company’s total sales reached $1.5 billion last year, up from $990 million in 1988, and earnings were a record $1.80 a share, versus 75 cents in 1988.
This year, Kidder, Peabody & Co. analyst Gary Jacobson figures that Mattel will earn $2.35 a share, paced by shipments of 50 million Barbies. Next year, he sees $2.75. Other analysts see somewhat lower figures, but virtually everyone agrees the numbers are going up at a healthy pace.
Despite worries that retailers would order cautiously for the Christmas season given consumers’ weak finances, Mattel characterizes its Christmas order trend as “strong.” Amerman also went so far in his New York speech as to predict an “excellent growth year” in 1992, based on the “outstanding reception” by retailers to new toy lines.
Indeed, Mattel’s aggressive expansion plan is what has caught the attention of new investors. The Barbie story has been well-known on Wall Street, but analysts have been eager to see what Amerman & Co. would do for an encore. Investors want to see a broad-based expansion where a few inevitable flops won’t threaten the company’s overall growth.
To money manager Carlene Murphy, that’s exactly the game plan that Mattel is following. Murphy, a money manager with the Strong Funds in Milwaukee and a longtime Mattel stockholder, was disappointed last spring that Mattel lost the bidding for troubled toy maker Tonka Corp. to archrival Hasbro Inc.
Tonka would have helped Mattel in the new markets that it must target for the ‘90s: boys’ toys and board games.
But Mattel has rebounded from that defeat with a sharp new toy lineup for fall and for 1992, Murphy says. “I really think that is what’s got the stock going--the new toy line. There’s so much breadth to it,” she says.
Some of the highlights, as described by Amerman in his presentation this week:
* Barbie Boutiques to be opened in stores such as Toys R Us and Wal-Mart this fall, selling Barbie for Girls shoes, jewelry, cosmetics and other accessories for little girls.
* A line of male action toys based on the upcoming Steven Spielberg movie “Hook,” a modern-day Peter Pan tale starring Robin Williams and Julia Roberts.
* A slew of new board games, to be introduced at the 1992 New York Toy Fair.
Mattel has brought aboard games whiz Larry Bernstein, formerly marketing chief at Parker Bros.
* A continuing flow of Disney plush toys and other products based on Mattel’s partnership with the entertainment giant. The opening of EuroDisneyland in France next spring could be a toy boon for Mattel in Europe.
Another big plus, Murphy says, is the renewed decline of the dollar against foreign currencies. Mattel is the No. 1 U.S. toy firm overseas, where it already garners more than half its revenue. It has a strong market in Europe, and this year launched new thrusts into Japan and Mexico.
As the dollar strengthened early this year, investors worried about Mattel’s overseas potential. Now, as the dollar sinks on expectations of lower U.S. interest rates, Mattel investors have one more reason to like the stock, Murphy says.
At $27.50 a share, Mattel shares sell for just 12 times this year’s earnings estimate.
Wall Street is happy to pay 15 to 20 times earnings for other growth stocks, but so far it still shortchanges Mattel. And that’s clearly annoying to Amerman. He began his speech in New York this week by saying, “I hope that you will leave (today) with a feeling about Mattel that is quite different from the one that you came in with.”
That’s no doubt going to take more time than Amerman would like. But if he keeps delivering on his promises, this is shaping up to be a tremendous buy-and-hold stock for the 1990s.
Mattel Inc. stock has gotten a lift in recent days, adding to its steady upward rise for most this year.
Weekly NYSE close, except latest (in dollars)