Why Is Mattel (MAT) Down 1% Since Last Earnings Report?

A month has gone by since the last earnings report for Mattel (MAT). Shares have lost about 1% 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 Q3 Earnings & Revenues Top EstimatesMattel reported impressive third-quarter 2024 results, wherein the adjusted earnings and net sales topped the Zacks Consensus Estimate. The top line surpassed the consensus estimate after missing it for three consecutive quarters. On a year-over-year basis, net sales declined while adjusted earnings grew.The company’s quarterly results benefited notably from its Optimizing for Profitable Growth program along with the focus on its multi-year strategy to expand its IP-driven toy business and entertainment offering. Although the top line was adversely impacted by reduced sales from both the reportable segments, the bottom line showed resilience through operational efficiencies.That said, for the upcoming quarter, the company expects its net sales to grow on the back of a good holiday season and a toyetic theatrical slate. Furthermore, Mattel also aims to strengthen its position moving forward for long-term growth and shareholder value creation.Mattel’s Earnings & Sales DiscussionMattel reported adjusted earnings per share (EPS) of $1.14, which beat the Zacks Consensus Estimate of 94 cents by 21.3%. It reported adjusted EPS of $1.08 in the prior-year quarter.Net sales amounted to $1.844 billion, marginally topping the consensus estimate of $1.837 billion by 0.4%. The top line dropped 4% on a reported basis and 3% in constant currency (cc) year over year.Net sales in the North America segment declined 3% year over year on a reported basis and at cc. The International segment’s net sales decreased 5% (as reported) and 3% (at cc) year over year. In the North America segment, gross billings fell 3% (as reported and at cc) year over year. The downside was primarily due to lower sales in Dolls (primarily Barbie), and Infant, Toddler, and Preschool (primarily Baby Gear & Power Wheels). This was partially offset by growth in Vehicles (primarily Hot Wheels) and Action Figures, Building Sets, Games and Other (primarily Games).Gross billings in the International segment declined 4% (on a reported basis) and 2% (at cc) year over year. The downtick was primarily due to a decline in Dolls (primarily Barbie); Infant, Toddler and Preschool (primarily Baby Gear & Power Wheels and Preschool Entertainment) and Action Figures, Building Sets, Games and Other. This was partially offset by growth in Vehicles (primarily Hot Wheels).MAT’s Category-Wise Worldwide SalesMattel, through its subsidiaries, sells a broad range of toys. These items are grouped under different categories: Dolls; Infant, Toddler and Preschool; Vehicles and Action Figures, Building Sets, Games and Other. Worldwide gross billings by Mattel Power Brands declined 3% year over year on a reported basis and at cc to $2.05 billion. The gross billings for Dolls witnessed a fall of 14% year over year on a reported basis and at cc due to declines in Barbie.Gross billings for Infant, Toddler and Preschool declined 3% (on a reported basis) and 2% (at cc) year over year due to declines in Baby Gear & Power Wheels. Gross billings for Vehicles were up 12% (on a reported basis) and 13% year over year (at cc), primarily driven by growth in Hot Wheels. Gross billings for Action Figures, Building Sets, Games and Other were also up 2% (on a reported basis) and 3% year over year (at cc) due to growth in Games, partly offset by declines in Other and Building Sets.MAT’s Operating ResultsDuring the third quarter, Mattel’s adjusted gross margin was 53.1%, up 210 basis points year over year. The upside was primarily driven by supply-chain efficiencies, savings from the Optimizing for Profitable Growth program, foreign exchange favorability and cost deflation.Adjusted EBITDA increased 1% year over year to $584.4 million. Adjusted other selling and administrative expenses increased $23 million year over year to $370 million. The uptick was mainly caused due to higher employee compensation, partly offset by savings from the Optimizing for Profitable Growth program.Balance Sheet of MattelAs of Sept. 30, 2024, MAT’s cash and cash equivalents were $723.5 million compared with $1.26 billion at 2023-end. Total inventories at the end of the quarter were $737.2 million compared with $790.5 million in the year-ago quarter and $571.6 million at 2023-end. Long-term debt (as of Sept. 30) was $2.33 billion, on par with the reported value at 2023-end. Shareholders’ equity was $2.31 billion at the end of the quarter.MAT’s Revised 2024 OutlookManagement now expects net sales to be comparable to slightly down from the prior year’s value of $5.44 billion at cc. Mattel increased its adjusted gross margin expectations to approximately 50% compared with the prior expected range of 48.5-49% (47.5% reported in 2023). Adjusted EBITDA is still projected to be in the range of $975 million-$1.025 billion.Capital expenditures are now expected to be in the range of $200-$225 million, up from the previously expected range of $175-$200 million. This compares with $160 million in 2023. Mattel anticipates adjusted EPS to be between $1.35 and $1.45 compared with $1.23 in 2023. Adjusted tax rate is now considered to be between 21-22% compared with 23-24% expected earlier.How Have Estimates Been Moving Since Then?It turns out, estimates review have trended downward during the past month.The consensus estimate has shifted -43.74% due to these changes.VGM ScoresCurrently, Mattel has a subpar Growth Score of D, however its Momentum Score is doing a lot better 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 20% for this investment strategy.Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Mattel has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Mattel, Inc. 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