Mattel shares jump after sales increase and accounting question is resolved
Mattel Inc.’s turnaround had been overshadowed this year by two big hurdles — a lack of consistent sales growth and an internal probe into its accounting practices.
The El Segundo toymaker said it has overcome both issues, sending shares soaring.
Revenue, powered by robust gains from Barbie and Hot Wheels, rose 3.1% to $1.48 billion, the company reported late Tuesday, topping analysts’ estimates, which had called for a small decline. That gain was the biggest since 2013.
Simultaneously, Mattel said it resolved a whistleblower allegation that derailed a $250-million bond sale earlier this year. The company will restate the last two quarters of earnings from 2017, but the changes won’t have a financial impact.
Chief Financial Officer Joe Euteneuer, who joined the company just as the accounting issues arose, will leave Mattel after a transition period.
The company’s performance contrasted with larger rival Hasbro Inc., which last week blamed disappointing results on customers changing and canceling orders ahead of U.S. tariffs on Chinese imports slated to take effect in December.
“We didn’t see any impact from tariffs in the quarter and we don’t expect any for the year,” Mattel Chief Executive Ynon Kreiz said Tuesday in an interview. “We’ve had solid, consistent execution.”
Kreiz, who took over about 18 months ago, has two prongs to his plan. The first is stabilizing the core business of making dolls and action figures. The second is better utilizing its brands by pushing further into entertainment, such as with feature-length films, streaming shows and amusement parks.
Mattel shares closed Wednesday at $12.02, up $1.45 or nearly 14%. The stock has advanced nearly 20% this year through Wednesday’s close, barely trailing a 21.5% gain in the benchmark S&P 500 index.
In North America, sales were little changed at $822 million, meeting the company’s expectations, Kreiz said. International revenue climbed 10%, driven by gains in Asia.
An internal company investigation determined after reviewing the letter from an anonymous whistleblower sent in August to its auditing firm that the toymaker had understated an income tax expense by $109 million in the third quarter of 2017, and overstated it by the same amount in the fourth quarter, with no impact for the full year or on subsequent periods.
The investigation also found that the errors weren’t disclosed to the company’s chief executive once they were discovered.
The investigation determined that the company had a material weakness in its internal control over financial reporting. Mattel pledged to fix the issue.
Another allegation from the whistleblower letter was that Mattel’s auditor, PricewaterhouseCoopers, wasn’t independent. The investigation found violations of auditor independence rules but otherwise determined that the auditor was independent.