The notes will be senior unsecured obligations of the company and will be at par with all other senior unsecured debt in right of payment. There is no sinking fund for the notes. The notes will be issued only in a registered form in denominations of $2,000 and integral multiples of $1,000.

The net proceeds from the sale of the notes will be approximately $492.7 million, after deducting underwriting discounts and offering expenses. These proceeds will be used to replace outstanding 2.75% convertible debentures due 2021 and repurchase shares to nullify the dilutive effect that the debentures will have upon conversion. The remaining proceeds, if any, will be used for general corporate and working capital purposes, which includes repurchase of shares of the company’s common stock, capital expenditures and possible acquisitions etc.

The company has increased its debt equity ratio from 31:1 in 2005 to 71:1 in 2009. However, the earnings to fixed charges ratio has declined from 8.33X in 2005 to 7.96X in 2009.

The notes carry a rating of Baa2, BBB and BBB+ by rating agencies Moody’s, Standard & Poor’s and Fitch, respectively. This implies that the notes carry an investment grade status.

BofA Merrill Lynch and Citi are acting as joint book running managers for the issue.

Based in Pawtucket, Rhode Island, Hasbro Inc is engaged in the design, manufacture and marketing of games and toys. The company principally provides children’s and family leisure time and entertainment products and services. It offers various games, including traditional board, card, hand-held electronic, trading card, role playing, plug- and-play and DVD games, as well as electronic learning aids and puzzles.

Zacks Investment Research

(HAS) Hasbro Offers $500 Million in Notes

Results were mostly in line with our expectations. While the company experienced a decline in revenue, the results were helped by cost cuts.

The company reported a 26% year-over-year decrease in revenue to $198.8 million. Though sales were driven by Halloween costumes, pretend play products, electronic toys and action figures, the company experienced declines in some of the products based on World Wrestling Entertainment (WWE), Hannah Montana, Neopets and others.

Including certain charges and other items, the company reported a net loss of $1.9 million or 7 cents per share, down from a profit of $16.9 million or 55 cents per share in the prior-year period.

For full year 2009, JAKKS reported a loss of $385.5 million or $14.02 per share, down from a profit of $76.1 million or $2.42 per share in the previous year. Excluding impairment charges and other items, the company earned $30.2 million or $1.03 per share in 2009, compared to earnings of $66.6 million or $2.13 per share in the prior year. Revenues were down 11% from the prior year to $803.7 million.

Behind the Headline Numbers

For the reported quarter, on a non-GAAP basis, gross margin was 28.3% as compared to 34.4% in the prior-year period. The decrease is due to the company’s product mix which included more lower-margin sales including closeouts. The company experienced lower-than-expected sales of its higher-margin products and a higher amortization of tools and molds as a percentage due to lower overall sales.

Selling, general and administrative expenses decreased 38% year-over-year to $27.1 million. This decrease is due primarily to the cost-cutting measures implemented by the company and the lower overall sales.

At the end of the quarter, JAKKS had cash and cash equivalents and marketable securities of $255 million compared to $170 million at the end of December 2008. The company reported operating cash of $109 million during the year, compared to $59.5 million for 2008. Capital expenditures were $15.8 million for the full year 2009, down from $22.3 million for 2008.

Accounts receivable at the end of the reported quarter were $129.9 million, down from $147.6 million at the end of the prior-year period. Days-sales-outstanding increased from 49 to 59 during the quarter. Inventory was $33.4 million at the end of the quarter, down 61% year-over-year, primarily due to the second quarter write-down and subsequent sell-off of inventory as well as tighter inventory management.

Outlook

JAKKS expects a loss of 20 cents to 25 cents in the first quarter on sales of $70 million to $74 million. For full year 2010, the company expects earnings of $1.10 to $1.20 per share on sales of about $660 million to $670 million. This compares to the Zacks Consensus Estimate of earnings of $1.34 per share. The company projected 2010 capital expenditures of $12 million, down from $15.8 million reported in 2009.

Though the company continues to make new additions to its product portfolio, management does not expect these additions to fully offset the declines in revenue from the Hannah Montana product line and the declines resulting from the end of its WWE licenses.

Additionally, Jack Friedman, Chairman and co-CEO, also announced that he will step down from his co-CEO post effective Apr 1, 2010. However, he will continue as the Chairman and serve as the company’s Chief Strategist. Stephen Berman will serve as the only CEO and continue as President.

Shares of JAKKS decreased 10 cents or 0.79% to $12.50 during Tuesday’s regular trading on the New York Stock Exchange. The shares were down another 73 cents or 5.84% in after-hours trading, reflecting the weak outlook for 2010.

Zacks Investment Research

(JAKK) JAKKS Pacific Earnings Down a Cent – Outlook Weak

RC2’s fourth-quarter earnings of 43 cents per share was ahead of the Zacks Consensus Estimate of 41 cents. The better-than-expected results were driven by a favorable product mix and higher margins reflecting cost-reduction initiatives. However, the results were flat compared to the prior-year period.

We expect RC2 to further benefit from its aggressive acquisition strategy and the cost cut drives. The company’s focus on core early childhood demographic factors bodes well. It markets its products to new mothers which represent a steady and renewable customer base.

Though RC2’s overall sales and profit are anticipated to be lower in the first half of 2010 compared to the prior-year period due to the transition in its preschool, youth and adult products category, we believe that the company stands to benefit from product launches such as the Dinosaur Train in the second half of the year. We are also positive about the Chuggington franchise.

The recently introduced Chuggington train play product lines have been well received in Hong Kong, London, Nuremberg and New York toy fairs. Additionally, the initial ratings for the Chuggington television show on Playhouse Disney are encouraging. This augurs well for the U.S. Chuggington product sales in 2011.

Importantly, in addition to its Chuggington master toy licensing rights, RC2 holds a 50% interest in the line’s intellectual property rights with Ludorum, a global media company that builds quality children’s entertainment franchises. Therefore, the company stands to benefit from royalty streams from non-toy products, including broadcast fees, apparel and accessories.

However, the loss of the Thomas & Friends license to Fisher-Price will likely prove to be a significant challenge in the near term and curtail sales and profit in the first half of 2010. Additionally, the continuing economic stress will remain a headwind in the near term as the retail environment remains challenging. Hence, we have a Neutral recommendation on the shares of RC2.

Zacks Investment Research

(RCRC) RC2 Raised to Neutral by Analysts

Company Description

Mattel makes toys and other family products. Brands include the iconic Barbie, Hot Wheels, Fisher-Price and many others.

Topped Estimates

Mattel released fourth-quarter results on Jan 29 that showed earnings per share of 89 cents. This topped the Zacks Consensus Estimate by 13 cents and was well above the 49 cents earned one year ago.

Sales great 1% to $1.96 billion, but Mattel also saw a favorable currency impact.

Double-Digit Growth

Analysts started revising their estimates right after there report, driving the full-year Zacks Consensus for 2010 to $1.62, from $1.53. Next year’s projections now average $1.79, up 10 cents.

If Mattel reaches these forecasts year-over-year earnings growth will be 18% and 10%, respectively.

Valuations

Mattel is trading with decent valuations right now. The earnings are coming cheap, with a forward P/E of less than 13 times. However, the PEG is 1.5 times, making the growth a bit on the expensive side.

The Chart

Shares off MAT have gone on to set a new 52-week high since the earnings release. The MACD also produced a buy signal for some momentum-based traders. Take a look at the chart below.

Bill Wilton is the Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Growth Trader service

Zacks Investment Research

(MAT) Mattel Incorporated – Double-Digit Earnings Growth Projected

Company Description

Mattel makes toys and other family products. Brands include the iconic Barbie, Hot Wheels, Fisher-Price and many others.

Topped Estimates

Mattel released fourth-quarter results on Jan 29 that showed earnings per share of 89 cents. This topped the Zacks Consensus Estimate by 13 cents and was well above the 49 cents earned one year ago.

Sales great 1% to $1.96 billion, but Mattel also saw a favorable currency impact.

Double-Digit Growth

Analysts started revising their estimates right after there report, driving the full-year Zacks Consensus for 2010 to $1.62, from $1.53. Next year’s projections now average $1.79, up 10 cents.

If Mattel reaches these forecasts year-over-year earnings growth will be 18% and 10%, respectively.

Valuations

Mattel is trading with decent valuations right now. The earnings are coming cheap, with a forward P/E of less than 13 times. However, the PEG is 1.5 times, making the growth a bit on the expensive side.

The Chart

Shares off MAT have gone on to set a new 52-week high since the earnings release. The MACD also produced a buy signal for some momentum-based traders. Take a look at the chart below.

Bill Wilton is the Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Growth Trader service

Zacks Investment Research

(MAT) Mattel Incorporated – Earnings Topped Estimates

Mattel has an industry-leading position, a strong balance sheet and continues to experience the benefits of its cost-containment initiatives. Its focus on top-line growth, margin expansion and cash conservation also augur well.

Considering the company’s product line up in 2010, we also expect an improvement in the top line in the upcoming quarters. However, the continuing economic stress will remain a headwind in the near term as the retail environment remains challenging.

Zacks Investment Research

(MAT) Mattel Incorporated – Bull of the Day

Mattel reported fourth quarter earnings of 89 cents per share. Excluding a tax benefit in the quarter, the company had earned 81 cents per share, well ahead of the Zacks Consensus Estimate of 68 cents a share. The company had earned 49 cents per share in the year-ago quarter.

The better-than-expected results were primarily driven by strong sales of its Barbie dolls and Hot Wheels cars during the holidays.

Mattel has an industry-leading position, a strong balance sheet and continues to experience the benefits of its cost-containment initiatives. Its focus on top line growth, margin expansion and cash conservation also augur well.

We also expect the top line to improve following the addition of new product lines for World Wrestling Entertainment and Thomas and Friends. The company has recently revamped the look of Barbie, which is attracting many customers. This has helped Mattel to experience strong sales during the last holiday season.

On the downside, we believe that the continuing economic stress will restrict significant top-line growth in the near term as the retail environment remains challenging. Though results improved during the fourth quarter of 2009, we noticed that full-year sales were significantly down from the prior year. Additionally, there was no major improvement in core sales.

However, we believe that the positives outweigh the negatives, and considering its current product line-up we have an Outperform recommendation on the shares of Mattel.

Zacks Investment Research

(MAT) Mattel Analysts Upgrade to Outperform

In 1959, Barbie Millicent Roberts made a name for herself at the New York toy fair and five decades later, she’s still around; though she goes by just Barbie these days.

It’s a name that Mattel (Nasdaq: MAT), the world’s largest toy maker, quickly turned into a global icon. And while the Barbie brand struggled over the last ten years, it made an obvious turn around as evidenced by the larger company’s latest earnings statement, which showed that fourth-quarter profits nearly doubled from the same time in 2008.

U.S. sales for the doll and her numerous accessories rose 9% during the last quarter, the first rise in nearly two years. Likewise, Barbie did well internationally; even excluding the positive impact of the weak U.S. dollar, they rose by 5%.

CEO Bob Eckert summed it up simply by saying: “Barbie is back.” And with strong sales of its sister products, it seems reasonable to say the same about Mattel.

Barbie’s Middle-Age Makeover

The last decade introduced plenty of competition for Barbie, in part due to societal changes and how young girls interact with each other. But the company invested heavily in revitalizing the brand, including intense marketing for the doll’s 50th anniversary last year.

The company’s revitalization plan made Barbie dolls more relevant for today’s girls and its marketing campaign worked beautifully. For instance, Mattel’s Barbie Fashonista line became one of the season’s hottest toys, and retailers had similar difficulty keeping the doll’s three-story townhouse – despite its $200 price tag – and $80 camper van in stock due to high demand.

And Barbie got a little help from her legal team as well. One of her edgier and most fierce competitors, Bratz, disappeared from shelves altogether after Mattel won a court battle for the brand’s design rights from MGA Entertainment. Of course, when Mattel prepared a line of its own Bratz dolls for 2010, the other company did succeed in putting at least a temporary stop to that line. But the legal battle hasn’t ended yet and the outcome could end favorably for Mattel.

Barbie Goes East

The Bratz battle will probably stretch on throughout at least this year, but Mattel is pursuing other paths to profit all the same, especially in Asia with major marketing campaigns in China. It plans to take similarly strong action in India, which it believes has the same potential in the long run, despite infrastructure problems it needs to deal with in the short term.

While it waits for India to play catch-up though, Mattel opened its first House of Barbie in Shanghai last year, complete with six stories, play areas and workshops where kids and their parents can design their own Barbie dolls. In addition, it also targeted young, Chinese women with clothing lines from Patricia Fields and Vera Wang, Barbie brand cosmetics, a spa and even a bar that serves grown-up drinks.

Admittedly, the House of Barbie’s adult side hasn’t done as well, since Mattel didn’t do its homework on local consumer tastes and subsequently chose styles that didn’t work for the area. But the rest of the business has a lot of potential, considering that China’s fragmented toy market currently amounts to about $2 billion annually. Mattel could capture as much as $300 million of that if it does its due research this time.

With its line of Chinese Barbie dolls – priced at $6 and up – the company hopes to tap a generation of only children, the product of China’s one-child policy. And those boys and girls are fast becoming big spenders in large part due to their doting parents and relatives.

Jean-Christophe Pean, Mattel’s Asia-Pacific general manager, calls China “a double-digit growth market, certainly for us.” The company believes it can turn the country into one of its largest five international markets within the next few years and is only waiting on the growing middle class to progress to the next level, allowing Mattel to follow suit.

Mattel Is Playing This One Right

Mattel shares have risen by about 30% since July 2009, when it began to outpace the S&P 500. And its recent performance should help keep it ahead of its smaller rival Hasbro (NYSE: HAS), whose stock still managed to perform largely better over the last decade.

But Hasbro has fewer movie themed tie-ins to call on this year, and its boy division – which contributes about a third of its sales – may struggle to match the strong performance it showed in recent years. For example, as Avatar’s popularity grows, Mattel’s blue-skinned Na’avi action figures could start to edge Hasbro’s Transformers out of the toy box.

Also in its favor, is the fact that toys remain relatively resilient in a recession, so Mattel should be able to grow steadily and raise their operating margin to the 15-20% range, pushed along by Asia. Between that favorable future and Mattel’s stock still selling on the cheap at only 12 times prospective earnings, it should perform well for patient investors no matter what surprises the economy may bring.

Good investing,

Tony Daltorio

View original at: Investment U

(MAT) Barbie is Back – And She’s Going Global

Certainly we have heard of Mattel, and because we had, we assumed that the $20 price tag stated in the article was inaccurate just based on the brands we were aware the company owned.

But once the toys were out of the box, we realized it was going to take some time to clean up the mess.

Basis
Financial information contained in this report is based on the company’s most recent Form 10-K filing for fiscal year ending December 31, 2008 as filed with the with the Securities and Exchange Commission on February 26, 2009.

What They Do
The company designs, manufactures, and markets a broad variety of toy products through sales to its customers and directly to consumers.

It’s portfolio of brands and products include Barbie®, Polly Pocket®, Little Mommy®, Disney Classics, High School Musical™, Hot Wheels®, Matchbox®, Speed Racer®, Tyco R/C®, CARS™, Radica®, Speed Racer®, Batman®, Kung Fu Panda®, Fisher-Price®, Little People®, BabyGear™, View-Master®, Sesame Street®, Dora the Explorer®, Winnie the Pooh™, Go-Diego-Go!™, See ‘N Say®, Power Wheels®, and American Girl Brands including Just Like You® and Bitty Baby®.

The company was incorporated in California in 1948 and reincorporated in Delaware in 1968.

Short-Term Investment
With a recent close of $20.04, and first resistance of $21.05, the stock currently has an upside reward of 5%. Conversely, with first support at $17.82, the stock currently has a downside risk of 11%.

The current trend line tells us that the stock is just coming out of an oversold condition, making for a nice short-term trade, assuming traders are willing to take on the risk, since we don’t see the stock price moving above current resistance in the near future.

However, the markets seems to think that the company is going to announce very good fourth quarter and fiscal 2009 earnings, and in review of the company’s recent Form 10-Q filings, we think the markets are grossly over enthusiastic about the stock.

Long-Term (5 Year Hold) Investment
The company’s financial statements are to us, sickening.

We fail to understand how the management of a company that has been in business more than 60 years, with the easily recognizable brands the company owns, can in good conscience, justify their existence, much less their jobs.

To us the company’s Current Ratio, Quick Ratio, and Cash Ratio, were all below what we consider investment quality.

In addition, Free Cash Flow at $0.82 per share was also well below what we consider investment quality. We were also not big fans of the company’s Total Debt at $2.48 per share. Not because we think it is excessive, we don’t, but because with that debt came an Average Interest Rate of over 9%, which we think given the world economic climate, is mind boggling!

Couple all of that with almost 23% of Total Assets being made up of Goodwill and Intangibles, and excuse us Mr. Eckert, why was your FY 2008 compensation package just a touch under $7 million?

Final Thoughts
We looked through the company’s financials for the first three quarters of fiscal 2009 and see little changed from fiscal 2008.

In order for the company to exceed fiscal 2008 Sales, the final quarter of fiscal 2009 would have to above $2.5 billion, a quarterly Sales number the company has never seen.

We valued the company based on fiscal 2008 financial information in the $27 range.

Considering the financial information we looked at for fiscal 2009, and making allowances for a 4th quarter that we don’t think will impress anyone, we believe that our valuation for the company will be adusted downward, closer to the company’s approximate 10 year average price of $21.

Wax

View original at: Wax Ink

(MAT) Is Mattel A Mess Worth The Toys?

The better-than-expected results were primarily driven by strong sales of its Barbie dolls and Hot Wheels cars during the holidays. The company is also focused on controlling its expenses and has reaped its benefits. Mattel has recently given a new look to Barbie, which has attracted many customers.

For the full year 2009, the company reported a net income of $528.7 million or $1.45 per share, compared to the prior year’s net income of $379.6 million or $1.04 per share.??For the quarter, the company reported an operating income of $417.4 million versus $232.4 million in the year-ago period.??Worldwide net sales increased 1% from the prior-year quarter to $1.96 billion. Though U.S. gross sales reported a 2% decrease, international sales were up 3% and were positively impacted by changes in foreign exchange rates.

Worldwide gross sales for the Mattel Girls & Boys Brands business unit were up 4% versus a year ago. Worldwide gross sales for Barbie increased 12% compared to last year while Hot Wheels were up 16%. While core Fisher-Price increased 1%, American Girl line was flat compared to the prior-year period.

Gross margin was 53.4%, up 740 basis points versus the prior-year period. Selling, general and administrative expenses were flat as a percentage of net sales at 19.8%.
The economic slowdown has severely impacted discretionary consumer spending, which has deteriorated sharply in the U.S. and in many countries around the world. As a result, the balance sheets of toy manufacturers such as Mattel, Hasbro Inc. (HAS) and JAKKS Pacific Inc. (JAKK) have been impacted significantly. However, as one of the dominant companies in the industry, the economic downturn may enable Mattel to strengthen its position at the expense of smaller rivals.

Zacks Investment Research

(MAT) Mattel Incorporated Beats Expectations as Barbie Jumps

The CPSC had alleged that RC2 Corp. and one of its wholly owned subsidiaries, Learning Curve Brands Inc, imported and sold Thomas & Friends Wooden Railway toys that had lead levels exceeding the legal limits. However, RC2 Corp. denied of any deliberate violation.

High levels of lead in paints or surface coatings of toys and other articles for children result in lead poisoning and affect their health. According to the 1978 federal lead paint ban, toys and other children’s articles are prohibited from having more than 0.06% of lead (by weight) in paints or surface coatings. However, the regulatory limit was reduced to 0.009% on Aug 14, 2009, as a result of the Consumer Product Safety Improvement Act of 2008.

RC2 Corp. had imported up to 1.5 million units of these non-compliant Thomas & Friends Wooden Railway toys between January 2005 and June 2007, which had then been distributed to retail customers. The toys were recalled in Jun 2007. The company also imported up to 200,000 units of five more non-compliant toy models from this product line between March 2003 and April 2007. These units were also recalled in September 2007.

We have an Underperform recommendation on RC2 Corp. Though the company’s third quarter results were ahead of the Zacks Consensus Estimate, primarily due to the benefits of the cost containment initiatives, it has reported a drop in sales in the quarter. The company experienced declines across most of its product lines. The economic downturn and challenging credit markets have also impacted the company’s distribution channels.

Lower domestic consumer spending is a primary reason for its disappointing results in the recent quarters. The lower level of spending caused many retailers to limit their reorders, and we anticipate this trend to continue at least through the first half of 2010. Additionally, such negative news may result in a fluctuation of the share price.

Zacks Investment Research

(RCRC) RC2 Corporation Penalized for Lead Levels

Also, the holiday season is expected to be a challenge as families are restricting their discretionary spending. Hence, we expect the company to continue to face a difficult operating environment in the near future.

Additionally, the loss of the Thomas & Friends license to Fisher-Price will likely prove to be a significant blow in 2010. Further, the chances of retaining the Wooden track system license when it expires in 2012 have been reduced, in our opinion.

Zacks Investment Research
View original at: Zacks.com News Feed

(RCRC) RC2 Corporation – Bear of the Day

Net sales were down 4.8% year-over-year to $126.5 million. Sales were reduced by 3% due to unfavorable fluctuations in foreign currency exchange rates. Slightly better results in North America were offset by weak International sales. Foreign currency exchange rates had a negative impact on International sales.

Sales in mother, infant and toddler products category decreased 5% year-over-year, driven by lower sales in health/safety and infant toy product lines. Management expects growth in this category in 2010.

Sales in preschool, youth and adult products category decreased 5% year-over-year. However, this decline was low when compared with the 15% year-over-year decline in the first half of 2009. The company experienced declines across most of the product lines except Thomas & Friends Wooden Railway.

The economic downturn and challenging credit markets have impacted the company’s distribution channels. Sales have declined over 20% in its Specialty retailers, Wholesalers, OEM dealers and Other channel.

RC2 Corporation reported gross margin of 46.4%, almost flat with the prior-year quarter’s 46.7%. However, selling, general and administrative expenses reported a decline of 10% year-over-year to $36.9 million. Results reflected the benefits of cost reduction initiatives.

Both operating income and adjusted EBITDA increased year-over-year. The company reported operating income of $21.8 million and adjusted EBITDA of $26.1 million in the quarter as compared with operating income of $20.9 million and adjusted EBITDA of $24.2 million in the prior-year period.

At quarter end, RC2 Corp. had $86.8 million in cash and cash equivalents on the balance sheet, with outstanding debt of $60.0 million, down from $67.5 million at the prior quarter’s end. Excluding the company’s stock offering proceeds, debt, net of cash, improved by $50.5 million over that at Sept. 30, 2008.

For the full year 2009, RC2 Corp now expects that higher net income than the $23.5 million reflected in its previous guidance. Its improved outlook ranges around $25 – $27 million or $1.30 – $1.40 per share.

The economic slowdown has severely impacted discretionary consumer spending, which has deteriorated sharply in the U.S. and in many countries around the world. As a result, the balance sheets of toy manufacturers such as RC2 Corporation, Mattel Inc. (MAT), Hasbro Inc. (HAS) and JAKKS Pacific Inc. (JAKK) have been impacted significantly.

While the third results were encouraging, we expect that the company will face a difficult holiday season in 2009 and a challenging operating environment in 2010. Also the loss of the Thomas & Friends license to Mattel’s Fisher-Price will likely prove to be a significant blow in 2010.

Zacks Investment Research

View original at: Zacks.com News Feed

(RCRC) RC2 Corp Beats, Raises Outlook

Net revenues for the quarter decreased 1.7% to $1.28 billion from the prior-year quarter. Excluding the adverse impact from a stronger dollar, revenues were up 1% in the quarter. Results reflected challenging economic environment, though the Transformers and G.I. Joe experienced strong demand.

However, gross margin increased 110 basis points from a year ago to 57.0%. Third quarter results include a 3 cents per share dilutive impact from the company’s investment in its joint venture with Discovery Communications and initial investments in Hasbro’s virtual studio.

Operating profit was $230.7 million, up 6.8% year-over-year. Operating margin increased 140 basis points over the year-ago quarter to 18.0%. Total EBITDA increased 9.6% to $286.9 million.

The U.S. and Canada segment’s net revenues were down 3.5% year-over-year to $791.9 million. While the boys category posted decent performance in the quarter, it was offset by declines in girls, preschool and the games and puzzles category. Operating profit in the segment decreased 2.2% year-over-year to $129.1 million. Operating margin for the segment increased 20 basis points to 16.3%.

The International segment reported net revenues of $444.1 million. The segment was down 3.6% year-over-year in U.S. dollars but up 4% excluding the impact of foreign exchange. Results reflect growth in boys and preschool categories offset by declines in the girls and the games and puzzles category. Operating profit in the segment was down 2.5% year-over-year to $64.1 million. Operating margin increased 10 basis points year-over-year to 14.4%.

Entertainment and Licensing segment net revenues were $41.6 million, compared to $18.3 million in the year-ago quarter, driven by demand for Transformers and G.I. Joe. The segment reported operating profit of $19.8 million compared to operating profit of $6.3 million a year earlier.

Regarding expenses, we note that royalty expenses increased 19.1% over the prior-year quarter to $99.7 million, as entertainment driven brands ? which include its own core brands ? continue to play a major role in its growth. Research and product development expenses totaled $43.8 million, down 12.2% year-over-year. Advertising expenses declined 10.8% year-over-year to $135.0 million. The decline is primarily due to a change in product mix as the company has shifted more entertainment base business this quarter compared to a year ago.

Regarding the impact from its joint venture investment with Discovery Communications, the company now expects that the dilution to the fourth quarter earnings will be in the range of 4 to 5 cents per share. For 2010, the company expects dilution of 25 to 30 cents per share.

The economic slowdown has severely impacted discretionary consumer spending, which has deteriorated sharply in the U.S. and in many other countries around the world. As a result, the balance sheets of toy manufacturers such as Hasbro, Mattel Inc. (MAT) and JAKKS Pacific Inc. (JAKK) have been impacted significantly.

We note, however, that Hasbro’s financial results are back-end loaded, with nearly two-thirds of annual revenue generated in the second half of the year. Hence, with some early signs of economic recovery, we think that the company should be able to enjoy growth in sales during the holiday season, though such growth would be limited.

Given its extremely strong financial position, we believe that Hasbro is poised to grow in future. The company has an impressive array of products and is generating strong performance out of popular items such as the Marvel and Transformers toy lines.

Nevertheless, given the high-level of uncertainty regarding consumer spending in the near term, we remain cautious.

Hence, we have a Neutral recommendation on the shares of Hasbro.

Zacks Investment Research
View original at: Zacks.com News Feed

(HAS) Hasbro Surpasses Consensus Earnings Estimates

Mattel, however, is focused on controlling its expenses. The company is rigidly managing its inventory and has lowered its advertising costs.

For the quarter, the company reported operating income of $336.5 million versus $315.3 million in the year-ago period.

Worldwide net sales decreased 8% from the prior-year quarter to $1.8 billion. U.S. sales reported a 2% decrease while international sales fell 14%. International locations were negatively impacted by changes in foreign exchange rates.

Worldwide gross sales for the Mattel Girls & Boys Brands business unit were down 10% versus a year ago. Worldwide Barbie sales declined 8% compared to last year, while Fisher-Price declined 6%. However, Hot Wheels were up 9% and the American Girl line increased 4%.

Gross margin was 51.3%, up 510 basis points versus the prior-year period. Administrative expenses increased 300 basis points as a percentage of net sales to 21.5%.

The economic slowdown has severely impacted discretionary consumer spending, which has deteriorated sharply in the U.S. and in many countries around the world. As a result, the balance sheets of toy manufacturers such as Mattel, Hasbro Inc. (HAS) and JAKKS Pacific Inc. (JAKK) have been impacted significantly.

Mattel also continues to feel the impact of the global recession and has recently faced difficulties with respect to margin pressures and deterioration in some of its core brands. The decline was fairly evenly caused by three main drivers: retailers continuing to tightly manage inventory levels, the lack of toys geared to summer entertainment as compared to last year, and the negative effect of foreign exchange.

Though we expect Mattel earnings to benefit from the most important holiday shopping season coming up, we expect the negative impacts to continue and thereby restrict the company’s results.

As one of the dominant companies in the industry, however, the economic downturn may enable Mattel to strengthen its position at the expense of smaller rivals.

Consequently, we have a Neutral recommendation on the shares.

Zacks Investment Research
View original at: Zacks.com News Feed

(MAT) Mattel Incorporated Reports Earnings Almost in Line

Hasbro’s second quarter results of 26 cents per share were three pennies ahead of the Zacks Consensus Estimate of 23 cents, reflecting strong sales of Transformers and G.I. Joe toys, both tied to blockbuster summer movies. The company also reaped the benefits of its cost curtailment initiatives.

At the time of the last earnings release, management had stated that the joint venture investment with Discovery Communications will not be as dilutive to 2009 and 2010 earnings as previously forecasted. The company had at that time expected that the dilution to 2009 earnings will be in the range of 15 to 20 cents per share, compared to the previous guidance of 25 to 30 cents per share.

For 2010, the company expects dilution of 25 to 30 cents per share, versus the previous expectation of 30 to 35 cents per share. Given Hasbro’s strong product line-up and lucrative product associations with popular motion pictures, the company remains well positioned to navigate the current downturn. It is generating strong growth out of popular items such as the Marvel and the Transformers toy lines.

Strong sales in the recent quarter resulted from growth in Transformers, G.I. Joe, Nerf and Play-Doh, among other product lines. Hasbro has also implemented several cost-saving initiatives and price increases, which should help it mitigate the increases in costs to some extent. Hasbro’s long-term strategy also focuses on extending its brands further into the digital world.

As part of this strategy, the company entered into a multi-year strategic agreement with Electronic Arts. The agreement provides opportunity to participate in the faster-growing digital gaming/casual entertainment category, a market that is expected to grow to $1 billion by 2011. However, uncertainty regarding consumer spending in this period of weak economic growth remains.

Customers are reducing their non-essential purchases. The economic slowdown has severely impacted discretionary consumer spending, which has deteriorated sharply in the U.S. and in many other countries around the world. As a result, the balance sheets of toy manufacturers such as Hasbro, Mattel Inc. (MAT) and JAKKS Pacific Inc. (JAKK) have been impacted significantly.

We note, however, that Hasbro’s financial results are back-end loaded, with nearly two-thirds of annual revenue generated in the second half of the year. Hence, with some early signs of economic recovery, we think that the company should be able to enjoy growth in sales during the holiday season, though such growth would be limited.

Given its extremely strong financial position, we believe that Hasbro is poised to grow in future. The company has an impressive array of products and is generating strong performance out of popular items such as the Marvel and Transformers toy lines. However, we feel that the most of this potential is currently reflected in the company’s share price.

Nevertheless, given the high-level of uncertainty regarding consumer spending in the near term, we remain cautious. Hence, we have a Neutral recommendation on the shares of Hasbro.

Zacks Investment Research
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(HAS) Hasbro Incorporated Earnings Preview

Mattel’s second quarter earnings of 6 cents per share were 4 cents, ahead of the Zacks Consensus Estimate. Despite a significant drop in sales in the quarter, quarterly results were ahead of estimates as the company benefited from cost containment measures.

As the world’s largest manufacturer of toys, Mattel has numerous well-known toy brands that have been the category leaders in multiple product segments for a number of years. Of the company’s leading brands, Barbie and Hot Wheels remain the premier toy brands for girls and boys, respectively.

Given its strong brand recognition, Mattel has successfully extended both these brands into other consumer products such as apparel, fashion accessories and bikes.

Mattel is also focused on implementing its cost reduction initiatives. The company initiated its Global Cost Leadership Program in 2008. This included a reduction in its global workforce of approximately 1,000 employees implemented in Nov 2008, a coordinated strategic plan that included structural changes designed to lower costs and improve efficiency, and additional procurement initiatives aimed at fully leveraging Mattel’s global scale.

Management expects this program to generate approximately $90 million to $100 million of net cost savings in 2009 and approximately $180 million to $200 million of cumulative net cost savings by the end of 2010.

Management is also focused on top line growth, margin expansion and cash conservation. The company implemented modest price increases for its 2009 product line that went into effect on Jan 1.

Mattel is planning to tightly manage its capital expenditures in 2009 to retain consistency with 2003 through 2007. In addition, given the current volatile global economic environment, Mattel is prioritizing protecting dividends to shareholders and minimizing strategic acquisitions and share repurchases in 2009.

Recently, Universal Studios and Mattel announced a new 10-picture, four-year worldwide marketing and distribution agreement. Universal has also acquired the rights to distribute all previous Barbie titles beginning Jan 1, 2010, making Universal the primary distributor of the entire Barbie catalog. The deal, which covers the U.S. and all international territories, runs through 2013.

However, the economic slowdown has severely impacted discretionary consumer spending, which has deteriorated sharply in the U.S. and in many countries around the world. As a result, the balance sheets of toy manufacturers like Mattel, Hasbro Inc. (HAS) and JAKKS Pacific Inc. (JAKK) have been impacted significantly.

Mattel also continues to feel the impact of the global recession and has recently faced difficulties with respect to margin pressures and deterioration in some of its core brands. The company has reported a significant drop in sales in the second quarter though the cost containment measures provided some relief.

Although the quarterly results contained some positive signs, in light of the current economic environment, we expect these challenging macro conditions to continue pressurizing Mattel’s earnings throughout 2009.

As one of the dominant companies in the industry, however, the economic downturn may enable Mattel to strengthen its position at the expense of smaller rivals.

Consequently, we have a Neutral recommendation on the shares of Mattel.

Zacks Investment Research
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(MAT) Earnings Preview for Mattel Incorporated

The U.S. District Judge has ordered Mattel’s Chief Security, Richard De Anda, to appear at a hearing on September 21, 2009. This hearing will address the MGA charge. Mattel had allegedly sent gifts to the law enforcement officials.

Mattel succeeded in obtaining the rights of MGA’s Bratz doll last year after the jury found that the Bratz concept was sold to MGA by a former doll designer of Mattel during his contract tenure at Mattel.

MGA has also accused Mattel of copying Bratz with its Flavas and MyScene Barbie dolls and for other unfair business practices in an another lawsuit, of which a trial is scheduled for next year.

The economic slowdown has severely impacted discretionary consumer spending, which has deteriorated sharply in the United States and in many countries around the world. This has significantly impacted the balance sheets of toy manufacturers such as Mattel, Hasbro Inc. (HAS) and JAKKS Pacific Inc. (JAKK).

Mattel continues to feel the impact of the global recession and has recently faced difficulties with respect to margin pressures and deterioration in some of its core brands. The company has reported a significant drop in sales in the second quarter though the cost containment measures provided some relief.

Although the second quarter results contained some positive signs in light of the current economic environment, we expect these challenging macro conditions to continue to put pressure on Mattel’s earnings throughout 2009.

However, we believe that as one of the dominant companies in the industry, the economic downturn may enable Mattel to strengthen its position at the expense of smaller rivals. Consequently, we have a Neutral recommendation on the shares of Mattel.

Zacks Investment Research
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(MAT) Did Mattel Manipulate the MGA Probe?

The third-party testing law was passed last summer as there was a significant increase in the number of recalls of toys contaminated by lead. Interestingly, a number of those toys had been produced by Mattel and its subsidiary Fisher-Price.

According to the new law, third party testing is mandatory for both big and small companies making products for children 12 and under. Strict limits have been set for lead, lead paint and chemicals such as phthalates.

However, Mattel’s request to use its own labs has been recently granted by the Consumer Product Safety Commission (CPSC). According to CPSC personnel, Mattel has proved that its labs were protected from unwarranted corporate pressure. Similar requests from other companies are pending at CPSC.

Seven of Mattel labs are approved by CPSC as “firewalled third-party laboratories.” These labs are located in California in the US, as well as Mexico, China, Malaysia and Indonesia.

However, other companies which are required to do the test in independent labs are incurring huge costs.

The economic slowdown has severely impacted discretionary consumer spending, which has deteriorated sharply in the United States and in many countries around the world. As a result, the balance sheets of toy manufacturers such as Mattel, Hasbro Inc. (HAS) and JAKKS Pacific Inc. (JAKK) have been significantly impacted.

Mattel continues to feel the impact of the global recession and has recently faced difficulties with respect to margin pressures and deterioration in some of its core brands. Although the quarterly results contained some positive signs, in light of the current economic environment, we expect these challenging macro conditions to continue to put pressure on Mattel’s earnings throughout 2009.

As one of the dominant companies in the industry, however, the economic downturn may enable Mattel to strengthen its position at the expense of smaller rivals. Consequently, we have a Neutral recommendation on the shares of Mattel.

Zacks Investment Research
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(MAT) Mattel Granted Permission to Perform its Own Toy Safety Tests

The company recently formed a Rural Carrier User Group to coordinate with several carriers, broadband consultants and engineering firms to exchange information and develop new ideas for emerging FTTP deployments. The American Reinvestment & Recovery Act (ARRA) contains provisions that encourage telecom operators to apply for grants, loans and guarantees to assist them in deploying un-served and under-served communities for broadband access.

The Broadband Stimulus Program has received significant acceptance among rural carriers. Out the total allotment of $7.2 billion, the first round will inject $4 billion into the industry. Yesterday, National Telecommunications and Information Administration said it had received about $28 billion in bids from various telecom service providers for the first round of stimulus fund.

ADC Telecommunications is a leading connectivity solutions provider for copper, fiber, and wireless networks. We expect the company to benefit from the rural broadband thrust as increased spending by carriers for fiber-based and wireless networks will boost demand for connectivity solutions especially in the local loop areas.

In the upcoming OSP EXPO 2009 (Sept. 2-3), ADCT will unveil a series of RUS-listed products. This portfolio includes OmniReach 3000 Fiber Distribution Hub cabinet, OmniReach Multiport Service Terminals, fiber-hardened drop cables, FiberGuide Optical Raceway system and OMX600 Optical Distribution Frame. ADC Telecommunications will also present its Next Generation Frame and LSX 288 fiber panel.

We believe that the ARRA will benefit small telecom equipment manufacturers and rural telecom operators. Telecom gear makers and infrastructure solution providers will help the regional/rural telecom operators to plan, design and implement broadband networks. Besides ADCT, other firms that are likely to benefit are Alvarion Ltd. (ALVR) and Arris Group Inc. (ARRS).

Zacks Investment Research
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(RUS) ADCT Telecommunications Targets Broadband Stimulus

You can find Debbie Downers in the stock market as well. Today’s example is Mattel (NYSE: MAT). After it reported lower earnings and an 11% drop in sales, it dragged Hasbro (NYSE: HAS) down with it.

The reasoning behind most of these moves is that the pressures hurting one company in a sector should be impacting the competition as well.

But that isn’t always the case.

We can find numerous examples of companies in the same industry with the same pressures that deal with those challenges differently. Southwest Airlines (NYSE: LUV) was able to put up considerable numbers over the past year as it’s competition suffered greatly. It did this by hedging its oil costs correctly.

Maybe Hasbro hasn’t done the exact same thing as Mattel – and will report similar earnings figures? But who’s to say they did. As smart investors, we cannot assume that is the case. As of this writing, Mattel is down 16% and Hasbro is down 9%.

Lets think about that, a 9% percent drop on no information about their business model. It’s the kind of emotional movement that value investors love.

View original at: Investment Advice and Investment Research with a Contrarian Point of View

(MAT) Mattel’s New Doll: Debbie Downer