July 17, 2012 / 10:24 AM / 5 years ago

Batman, Barbie and cost cuts lift Mattel profit

4 Min Read

(Reuters) - Mattel Inc (MAT.O) reported a higher-than-expected quarterly profit on Tuesday and shares rose as much as 11.4 percent as the world's largest toymaker kept a tight lid on costs and got a boost from Batman and Barbie.

The second quarter is typically a weak one for toy makers as they gear up for the holiday selling season when many of them make more than a third of their sales. Economic weakness, especially in Europe, also threatened to weigh on sales.

"We are very pleased to see the toy category essentially flat in Europe," Mattel Chief Executive Bryan Stockton told analysts on a conference call, adding that he expects the industry environment to remain cautious in the second half of the year.

Mattel, home to brands such as Barbie, Hot Wheels and Fisher-Price, said second-quarter net income rose to $96.2 million, or 28 cents a share, from $80.5 million or 23 cents a share a year earlier. Analysts on average were expecting a profit of 21 cents a share, according to Thomson Reuters I/B/E/S.

Sales were flat at $1.16 billion, while analysts expected $1.13 billion. The results suffered from the stronger dollar, which brings down the value of exported goods by U.S. companies.

Sales of Barbie dolls and accessories rose 5 percent while the company also said it saw momentum behind toys related to the "Batman - the Dark Knight Rises" movie, which is being released this week.

Mattel also partly offset the effect of unfavorable currency exchange rates by spending less on making and advertising its products.

"They have done a good job with their Operational Excellence 2.0 program to evaluate their overall business, cut expenses where possible," said MKM Partners analyst Eric Handler, who has a "neutral" rating on Mattel stock. "They are on track to save about $175 million over a two-year period."

Wells Fargo analyst Timothy Conder said Mattel had a "strong quarter from virtually every perspective" and recommended investors continue to buy its shares.

Jakks Pacific Inc (JAKK.O), a smaller rival that makes toys under labels such as Pokemon and Hello Kitty, was less successful in managing costs. Its second-quarter earnings, also released on Tuesday, missed analysts' estimates and prompted the company to issue a weaker-than-expected outlook for the year.

Hasbro Inc (HAS.O), the No. 2 U.S. toy company, is due to report results next week.

Mattel has found it hard to replicate the success of last year's "Cars 2" movie-themed toy line, with its newer playthings tied to "Brave" and the latest Batman movie, analysts have said.

Worldwide gross sales for the entertainment business were down 36 percent, mainly on decreases in the "Cars 2" merchandise.

Mattel sells toys through retailers such as Wal-Mart Stores Inc (WMT.N), Toys R Us Inc TOY.UL, and Target Corp (TGT.N) as well as through its own catalog and website.

Also on Tuesday, Mattel's board set a third-quarter cash dividend of 31 cents a share, continuing to keep the annual payout at $1.24.

Shares of Mattel were up 8 percent at $33.53 on Tuesday morning on the New York Stock Exchange, off an earlier high at $34.59.

Reporting by Dhanya Skariachan in New York and Brad Dorfman in Chicago; Editing by Lisa Von Ahn and Matthew Lewis

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