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Mattel 3Q net plunges
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October 21, 1999: 3:30 p.m. ET
Toy maker's software unit hurts results; 4Q profit warning issued
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NEW YORK (CNNfn) - Toy maker Mattel Inc. reported a 73 percent drop in third-quarter profit Thursday, reflecting a disappointing performance at its Learning Company educational software unit.
Mattel also warned that its fourth-quarter earnings will ring in significantly below Wall Street's current forecasts.
Income for the quarter fell to $135.3 million, or 32 cents a diluted share, from $233.8 million, or 54 cents a share, in the year-earlier period. Analysts polled by First Call had expected the company to report a profit of 31 cents a share, having revised their forecast after the Mattel warning earlier this month.
While there were no extraordinary items in the latest quarter, restructuring charges reduced net income for the year-ago quarter to $168.7 million, or 39 cents a diluted share. Sales slipped to $1.83 billion from the prior year's $1.88 billion.
Dismal sales, higher spending and a lapsed licensing agreement at its Learning Co. unit prompted the overall decline in earnings, said Mattel President Jill Barad. Mattel warned earlier this month that Learning Co. would reduce third-quarter earnings by 30 cents to 40 cents a share.
Mattel acquired the publisher of educational and children's software earlier this year for $3.5 billion. The unit was supposed to post a profit of $50 million, but ended up recording a loss of $105 million.
Mattel's stock suffered a lapse after the Learning Company's woes were made public
While the unit's problems are now behind it, "we are not yet projecting that it will return to substantial profitability in the fourth quarter," Barad said, adding that she now expects Mattel to post 1999 earnings of between 70 cents and 80 cents a share, well below the 95-cent-a-share average analysts polled by First Call were expecting.
Even with the fourth-quarter profit warning, some analysts expect a strong holiday shopping season will help Mattel's bottom line, boosting earnings and making its depressed stock price more attractive.
"They still need to better answer the issues with the Learning Company, but clearly there's a lot of upside potential there," said Beth Burnson, a retail analyst with ABN Amro. She currently has a "buy" rating on Mattel stock.
Part of the reason for that is that Mattel has held its own against competitors like Hasbro Inc. (HAS) in the lucrative U.S. toy market, Burnson said.
"Conventional wisdom seems to be that Hasbro has better products, but Hasbro's products aren't causing a problem domestically for Mattel," she said.
For the first nine months, Mattel's operating earnings totaled $205.8 million, or 49 cents a diluted share, before a $269.7 million charge. That's down from operating earnings of $263.9 million, or 62 cents a share, before a $146.5 million charge in the first nine months of 1998.
With the charges, Mattel posted a nine-month net loss of $63.95 million, or 17 cents a share, compared with earnings of $117.36 million, or 27 cents a share, a year earlier.
Sales for the period fell 2 percent to $3.74 billion.
Mattel is best known for its Barbie dolls, Fisher- Price infant and toddler toys, and for its Hot Wheels and Matchbox miniature cars and trucks. Its shares rose 1/4 Thursday to 13-9/16.
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Mattel
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