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Mattel Profits Fall; Hasbro Earnings Up
Monday October 17, 4:40 pm ET
By Anne D'Innocenzio, AP Business Writer
Mattel's Third-Quarter Profits Fall on Weak Barbie Sales; Rival Hasbro's Earnings Rise

NEW YORK (AP) -- Barbie lost out to Darth Vader as Mattel Inc. posted a double-digit decline in third-quarter earnings Monday, and rival Hasbro Inc. generated an increase in profit.

Both companies' results missed Wall Street expectations, though, as the toy industry feels pressure from increased energy costs that are crimping consumer spending and hurting profit margins.

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Mattel, the world's largest toy maker, said net profit fell 12 percent as lower Barbie sales offset higher revenue from other products. Hasbro said earnings grew 4 percent, boosted by sales of games and "Star Wars" toys.

The real test in the battle for sales will be the critical holiday quarter, and toy executives acknowledged economic headwinds will make the 2005 holiday season difficult.

"As we look ahead with the higher cost of gasoline and expected increases in home heating costs, it remains to be seen how much of an impact this will have on consumer spending during the holiday season," Alfred J. Verrecchia, president and chief executive officer of Hasbro, told investors in a conference call Monday.

El Segundo, California-based Mattel reported earnings of $225.3 million, or 55 cents per share, for the three months ended Sept. 30, down from $255.8 million, or 61 cents per share, a year earlier.

Sales declined slightly to $1.666 billion from $1.667 billion, even as the toymaker benefited from currency-exchange rates. Gross revenue fell 4 percent in the United States, while climbing 5 percent internationally, including a currency benefit of 3 percentage points.

Analysts had expected earnings of 61 cents per share on $1.72 billion in sales, according to a Thomson Financial survey.

"Overall, we continue to experience the effect of a difficult retail environment as well as cost increases," said Robert A. Eckert, chairman and chief executive. "I am confident, however, that our recent organizational changes have laid a positive foundation as we continue to reinvigorate the Barbie brand and improve our processes across the organization."

Mattel started to revamp Barbie last year, designing the iconic doll and her accessories within the context of different themes and story lines, but said it needs to do a better job in communicating the essence of the brand.

Worldwide gross sales of the doll fell 18 percent as Mattel struggles with increased competition from Bratz dolls from privately held MGA Entertainment Inc. But worldwide sales rose by double-digits for its other brands aimed at girls, and grew 4 percent for its wheels brands, including Hot Wheels, Matchbox and Tyco R/C.

The company's Fisher-Price brand grew 6 percent to $727.4 million, up 6 percent from the year ago period. Gross sales for its American Girl brand climbed 12 percent to $69.1 million.

Mattel last week disclosed a plan to consolidate its Mattel and Fisher-Price brands under a single division, which will include the Barbie, Hot Wheels and Fisher-Price brands, as well as licensed brands for Batman, Dora-the-Explorer and Sesame Street.

The toymaker, which has raised prices by 2 percent to 4 percent this year, said more is in store next year as it struggles with higher raw material and transportation costs.

Hasbro earned $92.1 million, or 47 cents per share, for the three months ended Sept. 25, up from $88.7 million, or 43 cents per share, a year ago. The year-ago results were restated to reflect the adoption of new accounting rules.

Revenue rose 4 percent to $988.1 million from $947.3 million, helped by a $5.9 million currency-exchange gain and strong sales of "Star Wars" products and games.

Analysts expected earnings of 51 cents per share on sales of $997.1 million, according to a Thomson Financial survey.

The company said game sales grew 7 percent. Revenue from U.S. toys climbed 6 percent on sales of its "Star Wars" products and its Furby, Nerf, Transformers, Playskool and Littlest Pet Shop brands.

Hasbro shares fell 2 cents to close at $18.70 in trading on the New York Stock Exchange. Shares of Mattel fell 56 cents, or 3.5 percent, to $15.39 on the NYSE.

Associated Press Business Writer Alex Veiga in Los Angeles and Richard C. Lewis in Providence, R.I. contributed to this report.

Mattel Inc.: http://www.mattel.com

Hasbro Inc.: http://www.hasbro.com