This Company Will Always Make Your Portfolio Strong

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Technological innovation has forced tech companies to be on their toes and keep changing with new advancements. Even toy companies are going through the same environment, trying to adapt to the dynamic nature of the toy market and changing customer needs and preferences. In a recent article, I discussed how toy companies are making use of new technologies to lure customers. As consumers become increasingly cautious about their spending, industry players such as Hasbro (NASDAQ: HAS) are going through a difficult phase. Nevertheless, they haven’t given up and are trying their best to stage a comeback.

However, Mattel (NASDAQ: MAT) has always been in a better position than its rival Hasbro. In fact, Mattel proved its worth again by posting a stellar third quarter, which was way ahead of the Street’s expectations. Let us take a closer look into it.

The Quarter in Detail…

Revenue surged 4% to $2.08 billion over the last yea,r and earnings jumped a whopping 21% to $1.04 per share. The amazing results came in spite of a continuous weak Entertainment unit sales and a decline in toy sales related to the movie “Cars 2.” Also, the company experienced a fabulous increase in gross margin to 53.7%, from 47.8% in the same period last year. The expansion of the gross margin and increase in earnings is quite surprising since, Mattel had increased its promotional spending. Its commendable cost control measures enabled the company to see great bottom line growth.

The Contributors…

Moreover, the toy maker’s buyout of HIT Entertainment, a kids’ TV firm, and 6% sales growth in Fisher-Price brands drove revenue north. Also, the American Girl line, as well as Disney Princess toys, contributed to the top line. In fact, revenue from American Girls rose 16% during the quarter.

Even Monster High Dolls drove sales for Other Girls Brands, especially leading up to Halloween. This resulted in a 57% jump in Other Girls Brands’ sales, making it the star segment of the quarter.

Mattel’s geographical performance was also good, with a 6% growth in North America and 2% growth in the International markets. Revenue from the International segment was driven by stronger demand from Europe and Asia, but was affected by unfavorable currency fluctuations.

Mattel has always been a prominent player in the industry and has given better returns than Hasbro, as shown in the chart below:

<img src="http://media.ycharts.com/charts/3cbefb585ed53dcf9f11f33de090c996.png" />

HAS data by YCharts

Clearly, Mattel’s stock price has appreciated 32.5%, compared to Hasbro’s appreciation of 7.5%.

Future Plans

The growing importance of tablets and smart phones has had an adverse impact on the toy companies, since people have started spending leisure time on such gadgets instead of going for other modes of fun, like toys. However, both Mattel and Hasbro have intended to overcome the problem by launching games that interact with such gadgets.

Additionally, Mattel will be partnering with retailers for the holiday season, so that it can keep the latter updated with its new and hottest offerings.

The company will also be promoting its toys heavily by launching an ad campaign in the international market next year. The campaign will be accompanied by new products and new packaging to attract customers.

Bottom Line

Considering the past performance and the future plans, Mattel looks like a worthy investment going forward. Also, the company has been an investor favorite, owing to its habit of paying dividends. The company not only repurchased its shares during the quarter but also declared a dividend of $0.31 per share. Moreover, with the peak holiday season ahead and a number of strategies in place, Mattel is expected to win investor's hearts more than it already has.


justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Hasbro and Mattel. Motley Fool newsletter services recommend Hasbro and Mattel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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