Board Still Backs Barad, Mattel Says
Mattel Inc. responded Friday to mounting criticism of Chief Executive Jill E. Barad by saying its board is still fully supportive of her.
The move follows an announcement by the El Segundo-based toy maker earlier this week that its third-quarter earnings will fall short of expectations by as much as 55%.
Some in the toy industry, however, questioned whether the statement is anything other than a perfunctory response. None of the directors would address the issue, a Mattel spokesman said. He declined to say if the board has met to discuss Barad’s status.
“I think it’s very odd that if there had been some movement of support that somebody at the board level wouldn’t be quoted,” said Sean McGowan, a toy analyst at Gerard Klauer Mattison. “Nothing in what I’ve heard today sounds like there’s really been a change, but more a restatement of what they’ve been saying all week.”
The company said Monday that its problems stem from bad news at its newly acquired computer software maker, Learning Co.--bought last May for almost $3.6 billion in stock and billed as a big moneymaker for the toy company. Mattel said it now expects to earn between 30 cents and 40 cents per share.
Mattel said the Learning Co. suffered on a variety of fronts, making a decision to opt out of a planned licensing agreement on top of higher-than-expected product returns, a write-off of bad debts and weak international sales.
The news, about a subsidiary Mattel had said would earn $50 million in after-tax profit, left investors furious with Barad, who has been in charge at a time when the company’s stock has fallen from a 10-year high last year of $46.75 to $11.81, down 50 cents, in after hours trading on Friday. Wall Street analysts have revised downward their expectations for both the holiday quarter, the year and in some cases, next year. Standard & Poor’s, a debt rating service, said it would review Mattel’s financial situation while Moody’s Investors Service, another rating agency, changed its outlook to negative from stable.
Perhaps most frustrating to institutional investors has been Mattel’s proclivity to promise healthy earnings and then restate expectations later. “You can’t help but be dismayed with the way things have happened,” explained Roy Papp, the managing partner of an investment firm with $1.2 billion dispersed among five funds, who pulled out of Mattel a few months ago.
Other investors and analysts noted that Barad and the Mattel board had been warned that Learning Co. might have problems.
Sirine Hafez, an analyst with the Center for Financial Research and Analysis in Rockville, Md., said she saw three big, red flags in the Learning Co.’s revenues reports when she reviewed them as part of a report on Mattel.
“It suggests there could be some aggressive accounting taking place,” Hafez said. “If you have a company you suspect of being aggressive, it’s always worse when they’re messing around with the revenue line than when they’re messing around with anything else.”
