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Mattel (MAT) Down 5.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Mattel (MAT - Free Report) . Shares have lost about 5.7% 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 Q4 Earnings & Revenues Beat Estimates

Mattel delivered impressive fourth-quarter 2021 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The metrics beat the consensus mark for the seventh consecutive quarter. Moreover, the top and the bottom line increased on a year-over-year basis.

Earnings & Revenues Discussion

During the fourth quarter, the company reported adjusted earnings per share (EPS) of 53 cents, beating the Zacks Consensus Estimate of 33 cents by 60.6%. In the prior-year quarter, the company reported an adjusted EPS of 40 cents.

Net sales during the quarter amounted to $1,794.9 million, surpassing the Zacks Consensus Estimate of $1,663 million by 7.9%. The top line rose 10% year over year. On a constant-currency basis, sales increased 11% from the prior-year quarter’s levels.

In North America, gross billings rose 13% (as reported and at constant currency) year over year. This can primarily be attributed to an increase in sales in Dolls (including Barbie, Polly Pocket, and Spirit), Action Figures, Building Sets, Games and Other (including Masters of the Universe, Jurassic World and Plush), Vehicles (including CARS), and Infant, Toddler, and Preschool (including Power Wheels). Net sales in the North America segment rose 14% year over year on a reported and constant-currency (cc) basis.

In the International region, gross billings rose 7% (as reported) and 9% (at cc) year over year. The uptick was driven by growth in Action Figures, Building Sets, Games and Other (including Jurassic World, Masters of the Universe, Plush, Games and MEGA) and Dolls (including Barbie, Spirit, Enchantimals and Polly Pocket). However, this was partially offset by declines in Vehicles (including Hot Wheels and CARS) and Infant, Toddler and Preschool (including Fisher-Price and Thomas & Friends). Net Sales in the International segment increased 9% (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 and Thomas & Friends and Other.

As reported, worldwide gross billings by Mattel Power Brands climbed 9% year over year to $1,991.4 million. The metric advanced 9% year over year at cc. The Barbie brand witnessed an improvement of 18% (on a reported basis) and 19% (at cc) year over year. Gross billings at the Hot Wheels brand declined 6% (on a reported basis) and 5% (at cc) year over year. Gross billings at the Fisher-Price and Thomas & Friends brands were down 2% (on a reported and cc basis) year over year. Gross billings at Other increased 15% (on a reported basis) and 16% (at cc) year over year.

Operating Results

Adjusted gross margin contracted 220 basis points year over year to 49.3% on account of input cost inflation. However, the downtick was offset by benefits associated with pricing, favorable fixed cost absorption and savings from the Optimizing for Growth program.

During the quarter, adjusted other selling and administrative expenses increased 2% year over year to $355.2 million. The increase was primarily driven by increased investments in the business.

Balance Sheet

As of Dec 31, 2021, the company’s cash and equivalents were $731.4 million compared with $762.2 million as on Dec 31, 2020. Total inventories as of the end of the fourth quarter were up 47.1% year over year to $777.2 million.

The company’s long-term debt was $2,571 million as of Dec 31, 2021, lower than $2,854.7 million as of Dec 30, 2020. Shareholder’s equity was $1,568.8 million.

2021 Highlights

Net Sales in 2021 came in at $5,457.7 million compared with $4,588.4 million in 2020. Adjusted operating income in 2021 came in at $763.3 million compared with $441.5 million in 2020. In 2021, adjusted diluted EPS came in at $1.30 per share compared with 54 cents reported in the previous year.

Outlook

For 2022, the company anticipates net sales to grow in the range of 8-10% at cc. Adjusted Gross Margin for 2022 is expected at 47%. Adjusted EBITDA for 2022 is expected in the range of $1,100-$1,125 million, suggesting an increase from $1,007 reported in 2021. Capital expenditures for 2022 are expected to be $175-200 million. The company anticipates 2022 adjusted EPS in the range of $1.42-1.48. Its mid-point of $1.45 is above the current Zacks Consensus Estimate of $1.43.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -20% due to these changes.

VGM Scores

At this time, Mattel has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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.


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