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Mattel, Jakks Operating Earnings Beat Forecasts

Toys: Firms' positive results are impressive given the weakness in the consumer and retail industries, analysts say.

July 20, 2001|ABIGAIL GOLDMAN | TIMES STAFF WRITER

Los Angeles-area toy makers Mattel Inc. and Jakks Pacific Inc. posted better-than-expected financial results Thursday, especially positive news in what is traditionally a slower period for toy sales.

Financial analysts also said the companies' results were impressive given the overall weakness in the consumer and retail industries.

El Segundo-based Mattel, the world's largest toy maker, posted operating earnings for the three months ended June 30 that were more than double those of the same period last year. Earnings during the second quarter were $10.1 million, excluding one-time charges, or 2 cents a share. Sales during the period were $854.3 million, a 4% gain over the same time last year.

Analysts polled by First Call/Thomson Financial expected an average gain of 1 cent for the quarter.

Last year during the same period, Mattel reported a $4.6-million operating profit, or 1 cent a share.

Including previously announced charges for restructuring, the company posted a second-quarter loss of $4.9 million, or 1 cent a share. Those costs were related mostly to Mattel's closure of its North American manufacturing and distribution operations.

In general, financial analysts tend to regard operating profit, or profit before extraordinary charges, as the most important gauge of a company's health, because it measures customers' response to a company's products or services.

Even more telling for Mattel, which had been plagued by middling sales and the since-sold Learning Co., was that sales were up in each of its divisions.

Worldwide sales in the company's girls division, which includes Barbie and American Girls dolls, were up 7%, the company said, with Barbie sales alone up 2%. In the infant and preschool division, which includes Fisher-Price, sales were up 4% globally.

And the boys-entertainment division, which includes licensed products and Hot Wheels, posted sales gains of 9% worldwide, based on a 21% gain in the entertainment category and a 2% gain for Hot Wheels and Tyco cars.

"There was no one smoking gun," said Brian McGough, leisure industry analyst for Morgan Stanley in New York. "That's why I like it so much, it was everything--sales came in better, they did better on the gross margin line, and they did better at cost control."

For the first six months of the year, Mattel reported a loss of $38.9 million on net sales of $1.59 billion. The loss for the same period in 2000 was $165.2 million on net sales of $1.51 billion.

"I'm very positive on the second half of the year for Mattel," said Hayley Kissel, leisure industry analyst for Merrill Lynch in New York. "We've got very good product flow, an improving retail environment and cost savings that should come through."

At Jakks, maker of World Wrestling Federation action figures among other toys, sales grew almost 39%, to $70.1 million this quarter from $50.6 million during the same time last year.

The company's operating profit for the period was $9.7 million, as compared with $6.7 million last year.

Jakks reported net income growth of 11% over the same period last year, with $6.9 million, or 36 cents a share, for the three months ended June 30. During the same period last year, the company reported operating earnings of $6.2 million, or 31 cents a share.

Jack Friedman, chairman and chief executive of Malibu-based Jakks, said the company's growth was based on the year-old Pentech acquisition, as well as good overall sales in the mass merchandise category.

Analysts polled by First Call/Thomson Financial had on average expected a gain of 34 cents.

Shares of Jakks closed up $2.35 at $17.50 on Nasdaq. Mattel fell 9 cents to close at $18.70 on the New York Stock Exchange.

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