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Will Mattel’s Q3 Bottom-Line Numbers Impress Investors?

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Adjusted EPS to rise more than twofold

Mattel (MAT) is scheduled to announce its third-quarter results on October 25. Wall Street expects the company to report adjusted EPS of $0.20, reflecting over twofold growth on a year-over-year basis. Cost-cutting efforts should aid the bottom line amid declining sales. Mattel’s management hasn’t provided an EPS outlook for the third quarter.

Under its Structural Simplification Program, Mattel has targeted savings of ~$650 million over the next two years by streamlining manufacturing and marketing costs and its stock-keeping units. The company has slashed 22% of its non-manufacturing workforce. The reduction is expected to save ~$150 million worth of selling, general, and administrative expenses as full-year run-rate savings. Mattel expects to realize nearly $50 million of that savings in 2018.

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A quick recap of second-quarter numbers

In the second quarter, Mattel’s adjusted EPS of -$0.56 came in much wider than analysts’ consensus estimate of -$0.30. On a reported basis, its EPS came in at -$0.70, much wider than the EPS of -$0.16 in the same quarter last year. Reduction in top line, muted profit margins, and the recording of $6.9 million as provision for taxes marred the company’s bottom-line numbers.

In the second quarter, Mattel’s cost of sales as a percentage of its total sales rose to 69.9% versus 59.0% in the second quarter of 2017. The company’s gross margin contracted to 30.1% from 41.0% in the corresponding quarter due to lower sales. Its selling, distribution, and administrative expenses rose 2% to $360 million. As a result, operating loss widened to $189.2 million compared to its loss of ~$49 million in the same quarter last year.

What are analysts projecting for peers?

Meanwhile, for the third quarter, analysts expect Hasbro (HAS) to deliver adjusted EPS of $2.23 as against adjusted EPS of $2.09 in the same quarter last year. Jakks Pacific’s (JAKK) adjusted EPS is expected to increase to $0.61 compared with $0.53 reported in the third quarter of 2017.

On the other hand, Take-Two Interactive’s (TTWO) adjusted EPS for the second quarter of 2019 is expected to be $0.93 versus $1.16 reported in the same quarter of fiscal 2018.

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