Mattel Posts Profit, Flat Sales
Mattel Inc. reported earnings Monday that beat analysts’ expectations after it trimmed costs in the first quarter, but the toy maker’s stock tumbled 7% as investors fretted over how it will fare the rest of the year.
The El Segundo parent of Barbie and Hot Wheels posted net income of $32.8 million, or 7 cents a share, in the quarter ended March 31, in contrast to a loss of $256.2 million, or 59 cents, a year earlier. Analysts had expected profit of 3 cents a share, according to Thomson First Call.
The company recorded pretax charges of $11.6 million in the quarter related to the merging of its girls and boys divisions, the consolidation of two manufacturing facilities in Mexico and the streamlining of office functions.
Sales were flat at $745.3 million.
Mattel shares closed at $20.93, down $1.67, in New York Stock Exchange trading.
The better-than-expected earnings could not boost the stock price because the profit was based in large part on Mattel’s ability to capitalize on lower prices for raw materials and transportation, which cost more now, analysts said.
“A good portion of the increase was nonrecurring,” said Bret Jordan, an analyst at Advest Inc. So the “upside surprise is not necessarily a sustainable upside.”
Furthermore, the company struck a cautionary tone during a conference call with analysts as it indicated that it may have lost some market share, Jordan said.
“We’re facing tough competitive challenges, whether it’s in male action or girls or games and puzzles -- every element of the toy business,” Chief Executive Robert Eckert said.
However, Mattel also said that it had a strong lineup of products and that it would invest more in advertising and marketing to boost sales.
Analysts say such spending is necessary to regain market share, but it also will eat into profit in the second half of the year.
Eckert blamed disappointing first-quarter sales on a variety of factors, including a weak economy, conflict in the Middle East and shaky consumer confidence caused by rising unemployment.
“The challenges we faced at the close of 2002 continue into 2003,” he said.
Although some retailers are expecting a bump in sales this quarter because Easter falls in April instead of March as it did last year, Mattel does not expect any second-quarter benefit from the holiday shift, Eckert said.
With sales weaker than expected since the disappointing holiday shopping season, retailers still have plenty of toys on their shelves to get them through Easter, he said.
