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Toy makers meet Street
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July 20, 2000: 10:23 a.m. ET
Mattel, Hasbro match estimates, but strong dollar hurts overseas profit
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NEW YORK (CNNfn) - Toy makers Mattel and Hasbro both met Wall Street's second-quarter estimates Thursday, but both saw narrower profit reflecting a strong dollar, and soft sales for some categories took a bite out of earnings.
Both companies also warned that a shortage of computer chips used in a growing segment of computer and interactive toys could have an impact on performance in the second half of the year.
Mattel domestic sales up
El Segundo, Calif.-based Mattel Inc. reported lower second-quarter operating profits Thursday, reflecting weaker sales overseas. However, the results were in line with Wall Street's expectations.
The maker of Hot Wheels cars and Barbie dolls reported income from continuing operations fell to $6 million, or a penny a share, from $16.5 million, or 4 cents a share, in the year-ago period. Analysts had expected the company to earn a penny a share, according to First Call.
Including a $227 million after-tax restructuring and integration charge last year, the company posted a second-quarter 1999 loss of 52 cents a share.
Net sales from continuing operations were $817.8 million, a 2 percent increase, or 4 percent in local currency, from $802.3 million in last year's second quarter.
"Led by growth in our core brands including Barbie, Fisher-Price and Hot Wheels, Mattel has experienced increased sales domestically for the third quarter in a row," Chairman and CEO Robert Eckert said.
However, he said international markets were more difficult for Mattel as retailers, specifically in Europe, continue to reduce inventories and battle the impact of a strong dollar. For the three months ended in June, sales from continuing operations rose 7 percent in the United States but were down 9 percent in international markets.
"Based on retail sell-through, we expect to see an improvement in international sales during the second half of the year," Eckert added.
 The company said Mattel Interactive, its software division that includes The Learning Co., is being treated as a discontinued operation. Mattel has been trying to sell The Learning Co. for several months.
Sales in the girls division grew 1 percent to $315 million for the quarter. The division includes Barbie, Polly Pocket! and Cabbage Patch Kids brands. Barbie sales rose 5 percent worldwide.
Worldwide sales in the infant and preschool division, including the Fisher-Price, Sesame Street and Disney brands, were flat at $305.1 million. However, lackluster overseas revenue was offset by strong domestic Fisher-Price sales.
In the boys division, made up of the wheels and entertainment categories, sales notched up 2 percent worldwide with flat domestic sales. The wheels category, which includes Hot Wheels cars, reported sales of $130 million. Sales in the entertainment category grew 4 percent to $67.1 million.
Looking ahead, Mattel warned that a shortage of computer chips, which the company uses for many of its new interactive toys and games, could hurt sales and profit in the second half of fiscal 2000.
"It's definitely an issue that could hurt their earnings outlook in the second half of the year," Merrill Lynch analyst Hayley Kissel said. "The industry has been trying to migrate toward more interactive products."
Shares of Mattel (MAT: Research, Estimates) were down 1/2 to 12-5/8 in trading Thursday.
Hasbro sees sales drop
No. 2 U.S. toy maker Hasbro saw worldwide second-quarter profits and sales sink, primarily because of an anticipated decline in demand for Star Wars and Furby products and a weak euro. However, the company did meet Wall Street's estimates.
For the second-quarter, ended June 30, the Pawtucket, R.I.-based maker of Play-Doh, Monopoly and Tonka trucks reported net earnings of $6.5 million, or 4 cents a share, compared with $32.2 million, or 16 cents a share, a year earlier.
That figure includes a 2-cent a share loss from Games.com, Hasbro's Internet games division, which is set to launch officially in September.
 Earnings are in line with analysts' consensus estimates, according to First Call.
Sales fell 11 percent to $778.4 million from $874.6 million a year earlier.
"We feel good about our performance this quarter," Chairman and CEO Alan Hassenfeld said.
Although overseas business remained solid overall, the strong U.S. dollar hurt sales, Hassenfeld said. Core brands Play-Doh, Monopoly and family board games sold particularly well overseas, he added, also citing higher shipments of Pokemon toys and games.
During the quarter, Hasbro spent $4 million to repurchase 250,000 of its shares, bringing the total repurchase investment to $367 million for 21.4 million shares.
Hassenfeld warned that a worldwide computer chip shortage could also hurt Hasbro in the second half along with a host of other factors, including continued high oil prices that could have an impact on resin and transportation costs, continuing softness in the interactive entertainment business, the strength of the U.S. dollar, and an overall lackluster retail environment.
Despite waning demand for Pokemon products in the U.S., Hassenfeld said he anticipates a resurgence with the release of the second Pokemon movie this week along with the introduction of new characters, toys and the launch of 40 new television episodes in the fall.
Nevertheless, Kissel remains skeptical. She believes Pokemon will continue to sell, but not at the breakneck volume of the last few years.
"There has been evidence of Pokemon slowing in the market now. I don't see any reason to believe there's going to be any pickup," Kissel said. "I think there is still going to be some baseline demand for Pokemon, but I think it's burning out a little bit faster than anticipated."
Regarding the fourth quarter, which includes the holiday season, Hassenfeld said he looks forward to the debut of several new lines, including Action Man, My Real Baby, Harry Potter, Berti Bott's Every-Flavored Beans and interactive games, pets and lifestyle products from its Tiger Electronics division.
Shares of Hasbro (HAS: Research, Estimates) tumbled 3-3/4 to 12-3/16 in trading Thursday. 
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