March 31, 2008 / 11:40 AM / 10 years ago

Mega Brands slips to quarterly loss after toy recall

TORONTO (Reuters) - Mega Brands MB.TO said on Monday that it slipped to a fourth-quarter loss, hurt by a costly product recall and inventory charges.

The toymaker lost $66.2 million, or $1.81 a share, in the quarter ended December 31, compared to a profit of $2.8 million, or 8 cents a share, in the same quarter of 2006.

The company’s stock dropped 30 Canadian cents, or 5.9 percent, to C$4.76 by late morning on the Toronto Stock Exchange.

Mega Brands, which had warned of costly charges two weeks ago, recorded more than $30 million in charges in the fourth quarter, including $25 million primarily related to product recalls and $4.3 million in litigation expenses.

Analysts had expected an average profit of 24.6 cents a share, according to Reuters Estimates.

Quarterly revenue was $128.8 million, down from $164.8 million a year earlier.

“We are disappointed with our overall performance and we promise that no effort is being spared to achieve a meaningful turnaround as quickly as possible,” Marc Bertrand, president and chief executive, said in a statement.

The Montreal-based company had been badly bruised by a global recall of its Magnetix toys, which killed one child and seriously injured 27 others who swallowed the small, powerful magnets. It was also hurt by supply problems in China and integration problems from its 2005 Rose Art acquisition.

The toy industry has been rattled by several high-profile recalls, including of toys with lead paint.

Mega Brands outlined a sweeping turnaround plan in December to counter a long list of woes. The company plans to reduce inventories, improve supplier deliveries, better integrate with its manufacturing in China and use new planning tools.

Earlier this month, Mega Brands said it may divest its stationery and activities unit, which sold more than $200 million last year, to focus on its core business. It has received several expressions of interest, including one from previous owner Rose Art.

The company also said on Monday some lenders had approved amendments to its credit facilities and the lenders also consented to the sale of its stationery business.

Mega Brands sells construction toys, arts and crafts supplies, games and puzzles under brand names Mega Bloks, Rose Art and Magnetix.

($1=$1.02 Canadian)

Reporting by Scott Anderson; Editing by Bernadette Baum

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