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Mattel (MAT) Down 0.8% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Mattel (MAT). Shares have lost about 0.8% in that time frame, underperforming the S&P 500.

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

Mattel Q1 Earnings & Revenues Beat Estimates

Mattel reported decent first-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate. The top and the bottom line declined on a year-over-year basis.

Earnings & Revenues Discussion

In the quarter under review, the company reported a loss per share of 24 cents, narrower than the Zacks Consensus Estimate of a loss of 26 cents. In the year-ago quarter, the company had reported adjusted earnings per share (EPS) of 8 cents.

Net sales during the quarter amounted to $814.6 million, beating the Zacks Consensus Estimate of $746 million. The top line declined 22% year over year. On a constant-currency (cc) basis, sales declined 21% from the prior-year quarter’s figure.

In the North America segment, gross billings fell 27% (as reported and at cc) year over year. Gross billings in the International segment declined 16% (on a reported basis) and 14% (cc) year over year. The segment was affected by the dismal performance of Infant, Toddler and Preschool (including Fisher-Price), Dolls (including Barbie) and Action Figures, Building Sets, Games and Other, partially offset by growth in Vehicles (including Hot Wheels).

Net sales in the North America segment declined 27% year over year on a reported basis and at cc. Net Sales in the International segment declined 15% (reported) and 13% at cc year over year.

Brand-Wise Worldwide Sales

Mattel, through its subsidiaries, sells a broad range of toys. These items are grouped under different brands — Barbie, Hot Wheels, Fisher-Price, Thomas & Friends and Other.

Worldwide gross billings by Mattel Power Brands fell 22% (on a reported basis) and 21% (at cc) year over year to $911.3 million. The Barbie brand witnessed a decline of 41% (on a reported basis) and 40% (at cc) year over year.

Gross billings at the Hot Wheels brand rose 1% (on a reported basis) and 2% (at cc) year over year. Gross billings at the Fisher-Price were down 27% (on a reported basis) and 26% (at cc) year over year. Gross billings at Other declined 20% (on a reported basis) and 19% (at cc) year over year.

Operating Results

During the first quarter, adjusted gross margin contracted 660 basis points year over year to 40%. The downside was mainly caused by inventory management efforts, including higher close-out sales and inventory obsolescence expense, cost inflation and unfavorable fixed cost absorption. However, this was partially negated by pricing and savings from the Optimizing for Growth program.

During the quarter under discussion, adjusted other selling and administrative expenses increased $15 million year over year to $336 million. The upside was backed by market-related pay increases, partially offset by savings from the Optimizing for Growth program.

Balance Sheet

As of Mar 31, 2023, the company’s cash and cash equivalents were $461.7 million compared with $761.2 million as of Dec 31, 2022. Total inventories at the end of first quarter came in at $961 million compared with $969.2 million reported in the prior year quarter.

The company’s long-term debt (as of Mar 31, 2023) was $2,326.7 million compared with $2,325.6 million as of Dec 31, 2022. Shareholders’ equity was $1,937.7 million.

Outlook

For 2023, the company anticipates flat net sales in comparison to 2022 at cc. Adjusted gross margin is expected at nearly 47% compared to 45.9% reported in the prior year. Adjusted EBITDA is expected in the range of $900-$950 million compared with $968 million reported in the prior year.

Capital expenditures are expected in the range of $175-$200 million compared with $187 million reported in 2022. The company anticipates 2023 adjusted EPS of $1.10-$1.20, down from $1.25 reported in 2022.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 11.46% due to these changes.

VGM Scores

At this time, Mattel has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Mattel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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