A Present for Children & Investors

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

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. Fresh off of a strong third quarter earnings report, I would like to pinpoint the largest manufacturer of children’s toys in the world, Mattel (NASDAQ: MAT).

Strengths:

  • Brand Portfolio: Mattel possesses a vast and diversified portfolio of toy brands, including Hot Wheels, CARS, Toy Story, Matchbox, Barbie, Monster High, Dora the Explorer, Polly Pocket, and several other recognizable brands that kids are drawn to  
  • Stable Sales Growth: In 2007, Mattel reported sales of $5.9 billion; in 2011, the company reported sales of $6.3 billion; representing year over year annual growth of 1.65%, a stable and sustainable rate; however, growth is set to accelerate into the future, putting 2014 sales at $7.1 billion
  • Dividend: Currently, Mattel pays out quarterly dividends of $0.31, which when annualized puts the dividend yield at 3.51%
  • Institutional Vote of Confidence: 90% of shares outstanding are held by institutional investors, displaying the confidence big-money and long-term investors have in the company and its future
  • Tremendous Margins: Mattel currently possesses a net profit margin of 12.12%, giving the company a large cushion to fall on if operating expenses rise   

Weaknesses:

  • Exposure to Europe: In 2011, international revenue represented 48% of total gross sales, and 51%, or $1.6 billion of international revenue was derived from Europe, a stagnant market that is facing many more year of continued pain
  • Non-Necessity Status: Mattel sells toys, something that does not have to be purchased, as when there is economic downfall toys are one of the first areas that are cut back or erased
  • Debt: Currently Mattel possesses around $873 million of debt on its balance sheets, and until these debts are paid off, they will weigh heavily on the company’s core business  

Opportunities:

  • Product Innovation: There are constantly new movies and TV shows being rolled out, and with these comes the opportunity to create toys centered around these new movies and shows, such as was done with CARS
  • Capturing Market Share: Mattel must constantly work to top their competitors, and capturing market share is a huge opportunity for the company that could significantly boost sales, especially during this holiday season
  • Acquisitions: There is always the opportunity for Mattel to acquire other fast-growing toy companies; however, it is important for the company to first get its debt situation under control
  • Tomorrow’s Toys: Mattel understands that the toys of tomorrow will revolve around the internet and technology, and has developed internet brands such as Monster High to meet to needs of tomorrow

Threats:

  • Stagnant Global Economy: When the global economy is suffering, less people have the money it requires to purchase luxuries such as the ones Mattel offers, and Mattel’s business will suffer until the global economy grows  
  • Competition: There are several other major companies that offer toy products, and fierce competition to offer the best products for the least amount of money can lead to margin contraction
  • Reliance on Children Consumers: Mattel derives the vast majority of their revenue from the sales generated by children, but children are easily influenced and constantly change their minds 

Competitors:

Major publicly-traded competitors of Mattel include Hasbro and LeapFrog Enterprises (NYSE: LF). Hasbro competes directly with Mattel, as they offer a wide selection of toys for both genders. Hasbro pays out a dividend yielding nearly 4%, and is valued at not even half of Mattel’s market capitalization. LeapFrog is more focused on toys revolving around technology. LeapFrog pays out no dividend and is valued at about $500 million.    

The Foolish Bottom Line:

Mattel possesses several strengths, weaknesses, opportunities, and threats; however, in the end the company appears to be a financially solid company with a bright future. Mattel possesses a diversified portfolio of globally recognized brands, and should have a decent holiday season. Mattel possesses a decently sized dividend, and when the global economic picture brightens, Mattel will prosper greatly.  


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Hasbro, LeapFrog Enterprises, and Mattel. Motley Fool newsletter services recommend Hasbro, LeapFrog Enterprises, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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