Earnings Cheat Sheet: Mattel (MAT) Sells Off Despite Earnings Beat

Mattel Inc. (NASDAQ: MAT) is the largest toymaker in the U.S. in terms of revenue, boasting a market cap of greater than $8 billion.  While slow sales throughout the economic downturn forced management to re-think their strategy, new initiatives aimed at cutting costs and expanding licensing agreements for new toys seem to be gaining some traction.  Still, their long-term impact remains unclear.

Earnings: MAT reported 3Q earnings of $283.3 million ($0.77/share), up 22.2% vs. 3Q09 earnings of $229.8 million ($0.63/share).

Revenue: Up 2.3% year-over-year to $1.83 billion.  Revenue increased 5.3% YoY excluding currency charges.

Actual vs. Wall St. Expectations: Earnings beat consensus estimates of $0.76 by $0.01, but revenue fell short of the Street’s $1.94 billion estimate.

Notable Stats: Revenue generated by MAT’s iconic Barbie brand rose 6% YoY, while Hot Wheels and Fisher-Price dropped 3% and 5%, respectively.  MAT recalled more than 11 million Fisher-Price products due to potential injury risks.  Gross Margins came in at 51.1%, down from 51.3% in 3Q09.

Did You Hear That? CEO Bob Eckert noted that, “retailers remain guarded with inventories and several are betting on a late holiday season this year,” adding that he thinks “consumers will be shopping later than usual for this holiday season.”

Technicals: Shares seemed poised to break above a 6-month trading range, but MAT’s earnings release has put that move on hold for the time being.  On a positive note, MAT was able to hold its 200-day moving average, indicating that Friday’s slide may be short-lived.

Comment: Sales of toys related to recent hit Toy Story 3 outperformed expectations, demonstrating some of the long-term potential of MAT’s increased licensing efforts.  Nonetheless, Q3’s revenue shortfall won the day, pushing shares down nearly 6.5% during Friday’s trade.  The selloff has shares yielding upwards of 3.5%, making MAT an interesting play heading into the holiday season.

Disclosure: No holdings in MAT.