Mattel’s results hurt by recalls
Mattel Inc.’s recalls of 21 million potentially hazardous toys took a toll on the company’s third-quarter results, but the world’s largest toy maker said Christmas would still look a lot like Christmas.
El Segundo-based Mattel recorded $31 million in after-tax charges against earnings to account for the cost of the recalls, which were issued this summer because millions of Chinese-made toys contained an excessive amount of lead in their paint or had small magnets that could be harmful if swallowed.
Aftereffects of the recalls also hurt sales, Mattel said, because the company slowed down shipments out of Asia while conducting newly extensive product testing and because China suspended export licenses for several factories used by Mattel while authorities there reviewed the plants’ safety procedures.
All told, the company’s profit slipped 1% in the quarter to $236.8 million, or 61 cents a share, from $239 million, or 62 cents, a year earlier. Sales rose 3% to $1.84 billion, less than Wall Street expected.
“I would describe the performance as not as good as the expectation before the recalls, but not as bad as I had feared,” said Sean McGowan, an analyst at Wedbush Morgan Securities.
Chief Executive Robert A. Eckert acknowledged that retailers were anxious about the economy and the effect the recalls might have on consumers during the holiday season, but he struck an optimistic note.
“There will be a Christmas and Mattel, Fisher-Price, Radica and American Girl toys will be under the tree,” Eckert told analysts and investors on a conference call.
Global sales of Barbie products remained soft, dropping 4%. Sales of Hot Wheels toys were up 10% while Mattel’s American Girl line was flat. The company also reported lower sales of its Dora the Explorer toys.
Sales of Mattel’s entertainment-related products rose 29%, reflecting strong performance of toys tied to the Disney-Pixar movie “Cars” as well as the addition of Radica, a line of electronic toys recently acquired by Mattel.
Without the recall-linked charges, Mattel would have earned 69 cents a share, a penny less than the 70 cents estimated on average by analysts, according to Bloomberg.
Mattel’s 3% sales gain also fell short of analysts’ estimates, which averaged 6.7%.
Shares of Mattel fell 23 cents Monday to $22.22.
In the wake of the company’s increased product testing, “I’m confident that this year’s toys will be the safest ever,” Eckert said. He added, “It is my sincere hope that we’ll not be judged solely on the issues that have confronted us, but also in the way in which we’ve responded to those issues.”
