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Mattel (MAT) Down 6.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Mattel (MAT). Shares have lost about 6.3% 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 drivers.

Mattel (MAT) Q4 Earnings Miss, 2023 View Upsets

Mattel, Inc. delivered fourth-quarter 2022 results, wherein both earnings and revenues missed the respective Zacks Consensus Estimate, after surpassing ten straight quarters. Both the metrics declined on a year-over-year basis.

After the results, Ynon Kreiz, Mattel’s chairman and CEO, stated, “Our fourth quarter results were below our expectations, as the macro-economic environment was more challenging than anticipated. While less than expected, POS grew in the quarter and the full year and we achieved growth in net sales in constant currency for the fourth consecutive year.”

Earnings & Revenues Discussion

During the fourth quarter, the company reported adjusted earnings per share (EPS) of 18 cents missing the Zacks Consensus Estimate of 27 cents. In the prior-year quarter, the company reported adjusted earnings of 53 cents.

Net sales during the quarter amounted to $1,401.9 million, missing the Zacks Consensus Estimate of $1,658 million. The top line declined 22% year over year. Moreover, on a constant-currency (cc) basis, sales decreased 19% from the prior-year quarter.

In the North America segment, gross billings declined 25% (as reported and at cc), year over year. Gross billings in the International segment declined 19% (reported) and 13% (cc) year over year.The decline was primarily due to the dismal performance of Infant, Toddler, and Preschool (including Fisher-Price and Thomas & Friends), 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 26% year over year on a reported and cc basis. Net Sales in the International segment decreased 18% on a reported basis and 12% 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 decreased 22% (on a reported basis) and 19% (at cc) year over year to $1,559.6 million. The Barbie brand witnessed a decline of 33% (on a reported basis) and 30% (at cc) year over year.

However, gross billings at the Hot Wheels brand rose 8% (on a reported basis) and 13% (at cc) year over year. Gross billings at the Fisher-Price and Thomas & Friends brands were down 33% (on a reported basis) and 30% (at cc) year over year. Gross billings at Other increased 21% (on a reported basis) and 18% (at cc) year over year.

Operating Results

Adjusted gross margin contracted 620 basis points year over year to 43% due to inventory management initiatives, which includes higher close-out sales as well as inventory obsolescence expenses, higher input cost inflation, unfavorable fixed cost absorption and higher royalty costs.

During the quarter under discussion, adjusted other selling and administrative expenses decreased $80 million year over year to $281 million. The decrease can primarily be attributed to a decline in incentive compensation and savings from the Optimizing for Growth program.

Balance Sheet

As of Dec 31, 2022, the company’s cash and cash equivalents were $761.2 million compared with $731.4 million as of Dec 31, 2021. Total inventories as of the end of the fourth quarter were up 15% year over year to $860.2 million.

The company’s long-term debt was $2,325.6 million as of Dec 31, 2022, lower than $2,571 million as of Dec 31, 2021. Shareholders’ equity was $2,056.3 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 to be in the range of $900-$950 million, compared with $968 million reported in the prior year.

Capital expenditures are expected to be $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. The estimated range is below the current Zacks Consensus Estimate of $1.60.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -247.32% due to these changes.

VGM Scores

At this time, Mattel has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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

Performance of an Industry Player

Mattel belongs to the Zacks Toys - Games - Hobbies industry. Another stock from the same industry, Activision Blizzard, Inc (ATVI), has gained 4.1% over the past month. More than a month has passed since the company reported results for the quarter ended December 2022.

Activision Blizzard, Inc reported revenues of $3.57 billion in the last reported quarter, representing a year-over-year change of +43.4%. EPS of $1.87 for the same period compares with $1.25 a year ago.

For the current quarter, Activision Blizzard, Inc is expected to post earnings of $0.59 per share, indicating a change of +55.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.1% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Activision Blizzard, Inc. Also, the stock has a VGM Score of D.

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