Mattel (MAT) Down 6.8% Since Last Earnings Report: Can It Rebound?

A month has passed since Mattel’s (MAT) last earnings report. Shares have lost about 6.8% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mattel at risk of a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

Mattel’s first quarter results were better, revenues were lower

Mattel reported first-quarter 2024 results, where earnings exceeded the Zacks Consensus Estimate, but revenues remained flat. The top line missed consensus estimates for the second quarter in a row.

The company reported strong financial results, largely driven by increased margins and $100 million in share repurchases during the quarter, and remained on track with its annual goals. Anticipates continued benefits from the Optimize for Profitable Growth initiative, which targets $60 million in cost reductions in 2024 and $200 million in cumulative cost reductions by 2026.

Discussion about earnings and revenues

For the quarter, Mattel reported adjusted loss per share of 5 cents, narrower than the Zacks Consensus Estimate of a loss of 12 cents. In the year-ago quarter, adjusted loss per share was 24 cents.

Net sales for the quarter were $809.5 million, 3.4% off the consensus estimate of $838 million. The top line declined 1% on a reported and constant currency or CC basis year-over-year.

Net sales in the North America segment increased 2% year-over-year and on a cc basis. International segment net sales were down 4% (as reported) and down 5% (in cc) year-over-year.

In the North America segment, gross billings increased 1% (data and CC price) year-over-year.

Gross settlements in the international segment decreased year-on-year by 4% (reported) and 6% (per cc). The decline was primarily due to declining sales of dolls (primarily Disney Princess and Disney Frozen), infants, toddlers and preschools (primarily Fisher-Price and Preschool Entertainment), action figures, building sets, games and others (primarily action figures). The decline was partially overshadowed by an increase in the number of vehicles (mainly Hot Wheels).

Brand-wise global sales

Mattel sells a wide range of toys through its subsidiaries. These items are grouped under different brands: Barbie, Hot Wheels, Fisher-Price and others.

Mattel Power Brands’ worldwide gross billings decreased 1% (reported) and 2% (per cc) year-over-year to $898.9 million. Gross settlements for the Barbie brand remained stable from year to year.

Gross billings for the Hot Wheels brand increased year-over-year by 5% (reported) and 4% (per cc). Gross billings at Fisher-Price were unchanged (as reported) but decreased 1% (on a cc basis) year-over-year. Gross settlements in other companies decreased year-on-year by 7% (according to reporting data) and 7% (in CC terms).

The story continues

Operational results

In the first quarter of 2024, Mattel’s adjusted gross margin was 48.3%, up 830 basis points year-over-year. The positives included a decline in inventory management costs, cost deflation, savings from the Optimization for Profitable Growth program, favorable product mix and currency exchange, as well as lower other supply chain costs.

During the quarter, adjusted other selling and administrative expenses increased by $6 million year-over-year to $408.8 million. This growth was mainly due to market-based wage increases and investment, slightly overshadowed by cost savings.

Balance

As of March 31, 2024, cash and cash equivalents were $1.13 billion compared to $461.7 million at end-2023. Total inventories at the end of the first quarter were $669.3 million compared to $961 million in the same quarter last year.

Long-term debt (as of March 31, 2024) was USD 2.33 billion, corresponding to the value reported at the end of 2023. As of March 31, 2024, shareholders’ equity was USD 2.05 billion.

Outlook for 2024

Management continues to expect 2024 net sales to be comparable to the prior year on a constant currency basis.

Mattel continues to expect adjusted gross margin in the range of 48.5-49%. Adjusted EBITDA is forecast in the range of $975 million to $1,025 million.

Capital expenditures are expected to be $175 million to $200 million, compared to $160 million in 2023. Mattel expects 2024 adjusted EPS to be $1.35 to $1.45, compared to $1.23 in the quarter previous year.

How have estimates changed since then?

It turns out that new estimates have been trending upwards over the past month.

VGM results

Currently, Mattel has a great Growth Score of A, although it lags slightly behind its Momentum Score with a B. Plotting a somewhat similar path, the stock was given an A on the value side, putting it in the top quintile for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show an upward trend, and the scale of these adjustments was net zero. Notably, Mattel carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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