Mattel soars after toy demand helps earnings smash estimates

Kelly Gilblom

Mattel Inc. rose as much as 11% in early trading Friday after third-quarter results shattered expectations, lifted by consumers snapping up Barbie dolls and Hot Wheels toys during the pandemic.

Revenue rose 10% to $1.63 billion in the period, Mattel said on Thursday, topping analysts’ predictions of $1.46 billion. Adjusted profit was 95 cents a share, beating estimates of 39 cents, as the company continued to work on cutting costs.

Mattel's Barbie sales surged 22% in Q3, compared with a year earlier.

Mattel has addressed inventory problems posed by the coronavirus and expects a stronger-than-normal holiday buying season, Chief Executive Officer Ynon Kreiz said in an interview. The company said that inventories at retail outlets were lower than at the same time last year, and they’re working together to avoid product shortages.

The lack of new movie franchises tied to competing toy brands may provide a boost to Mattel, which relies on well-known products such as Barbie, Uno and Pictionary. The company’s doll sales surged 22% compared with a year earlier, as families looked for cheap ways to entertain kids during lockdowns.

After an earlier surge, Mattel shares settled down to a 7.3% gain as of 8:49 a.m. in New York. They are down 4.7% this year, mostly because of weaker sales in the first half of the year.

Shares of rival Hasbro Inc. also got a boost from the results, climbing 2.3% in early trading.

What Bloomberg Intelligence Says

“Mattel’s longer-dated bonds, rated B3/B-, could tighten as the company delivers faster with a strong holiday toy season driven by Barbie gains and increased online shopping. Results in 3Q were strong, mainly on Barbie rising 30% year-over-year. Leverage at 4.5x is approaching an inflection point and should decline as Ebitda improves.”

Hoai Ngo, credit analyst

Mattel also said it expects sales in 2020 overall to be roughly flat compared with last year, but its adjusted profit margin should rise to as high as 49%.

The El Segundo, California-based company is looking to get more money from its intellectual-property rights, rather than just relying on product sales. It has 10 films in development but hasn’t set release dates for any of its movies.

Mattel withdrew its 2020 guidance earlier in the year due to uncertainty over the coronavirus, which affected both the production of new products and demand. The company did say in July it expects sales to improve in the second half of the year after they fell 14% year-over-year during the first six months of 2020, and see run-rate cost savings of $1 billion.