2nd-Quarter Profits Fall at Mattel, Hasbro
The nation’s two largest toy makers, Mattel Inc. and Hasbro Inc., said second-quarter profits took a hit from some divisions’ slowing sales and a strong U.S. dollar that inflated prices abroad.
Although Hasbro’s troubles occurred at home and abroad, Mattel was able to offset its difficulties overseas with stronger-than-expected domestic sales for core product lines such as Barbie, Fisher-Price and Hot Wheels.
Hasbro warned that industrywide problems could lead to a difficult second half of the year, but Mattel told Wall Street analysts that the company is likely to meet earnings expectations despite the same problems.
El Segundo-based Mattel reported operating income of $6 million, down 64%, from $16.5 million a year ago. Sales increased 2% to $817.8 million, from $802.3 million in the second quarter of 1999.
Hasbro, based in Rhode Island, reported earnings of $6.5 million, compared with $32.3 million a year ago, an 80% drop. Hasbro said sales for the most recent quarter fell 11% from the same period last year, to $778.4 million, compared with $874.6 million in 1999--results that were in line with financial forecasts.
In Mattel’s case, Wall Street analysts, who for months have criticized the company’s declining performance and fled its stock, said the numbers might be misleading. Some analysts said a better gauge of Mattel’s performance is its core domestic sales, which rose 7% compared with last year.
Mattel’s domestic growth was dragged down by a 9% drop-off in overseas sales, the company said. International sales fell 3% in local currency, which factors out the dollar’s strength.
“The core brands held some momentum,” said Hayley Kissel, a leisure industry analyst for Merrill Lynch in New York. “They are working to repair their business, and you have to give them credit for that.”
Mattel was also able to better its image with a significant accounting change. Last year’s striking losses--the first in a decade for Mattel--were attributed to the company’s $3.6-billion purchase of software maker Learning Co.
In April, however, after Learning Co. had bled its new parent of more than $300 million and cost former Chief Executive Jill Barad her job, Mattel announced it will sell the division, which it had acquired less than a year earlier. Analysts have speculated that the company now might fetch as little as $200 million to $500 million.
Although Learning Co. cost Mattel $63 million during the second quarter--about $700,000 every day--Mattel was able to remove those losses from the bottom line of its financial reports and treat the division as a discontinued operation.
During a Thursday conference call, Mattel Chairman and Chief Executive Robert Eckert said talks are continuing to find a buyer for Learning Co., which owns such titles as Myst and Carmen Sandiego.
“Mattel is a great company with fabulous brands and terrific people,” Eckert said. “What we need to do is refocus on the toy business, refocus on the bottom line and drive shareholder value.”
Hasbro’s troubles come mostly as a result of a fall-off in three hit product lines: Pokemon, Star Wars and Furby. Hasbro also warned that those three groups are likely to face continued softness in the second half of the year. The company noted it will face other challenges, including a computer chip shortage and high energy prices.
Asked about similar challenges, Mattel said that, barring an unforeseen catastrophe, the company still expected to meet analysts’ annual earnings expectations.
“For them not to come out and give the same kind of warning as Hasbro is a pretty strong statement,” said toy industry analyst Sean McGowan of Gerard Klauer Mattison in New York. “There is obviously confidence in the domestic business.”
In the United States, Barbie sales were up 19% over the same period a year ago, or 5% worldwide. Core Fisher-Price brands rose 21% domestically, along with a 33% U.S. gain for Sesame Street products. Sales for the overall infant and preschool division were flat worldwide compared with 1999, Mattel said.
The boys and entertainment business grew 2% worldwide--with the Hot Wheels brand gaining 19%.
On the New York Stock Exchange, Mattel shares closed down 38 cents to $12.75, and Hasbro shares hit a new 52-week low, closing at $12.06, down $3.88.
