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Mattel Climbs After Cost Cutting Lifts Profit Above Estimates

Mattel Beats Profit Estimates After Barbie Maker Tightens Belt

(Bloomberg) -- Mattel Inc. rose as much as 5.3% in late trading after cost-cutting measures helped offset a sluggish holiday season for the company’s American Girl dolls and Fisher-Price toys.

The stock climbed as high as $15.20 on Thursday after Mattel posted fourth-quarter earnings of 11 cents a share, excluding some items. That topped the 3-cent average estimate from analysts.

The results benefited from belt-tightening measures put in place by Chief Executive Officer Ynon Kreiz, who is working to recover from a series of setbacks and scandals at Mattel. The toy giant has had to overcome the bankruptcy of Toys “R” Us and a recall of 4.7 million Fisher-Price devices after they were linked to the deaths of about 30 babies. Then in October, the company acknowledged it had issued inaccurate financial statements in 2018.

“2019 was an important inflection point in our turnaround,” Kreiz said in an interview. “We significantly improved profitability and achieved positive free cash flow for the first time in three years.”

The stock was up 6.3% this year through Thursday’s close, lifted by optimism about Mattel’s recovery plan.

For now, sales remain slow. They fell 3% to $1.47 billion in the fourth quarter, a bit shy of the $1.5 billion projected by Wall Street.

Mattel expects a rebound in 2020, with stronger demand for Barbie dolls and Hot Wheels helping boosting revenue by 1% to 2.5%. However, that excludes the impact of the coronavirus. While Mattel sells only a sliver of its products in China, it’s facing manufacturing delays as a result of government-imposed quarantines.

Shuttered Factories

The company’s factories in China were expected to restart on Feb. 3, following the Lunar New Year. They will now reopen Feb. 17, according to Chief Financial Officer Joe Euteneuer.

“The situation remains fluid and we are monitoring any developments closely,” Kreiz said on a call with analysts.

Earlier this week, the toymaker said it would close two factories in Asia and one in Canada. It also recently said it would sell a factory in Mexico. The closures may help further improve the company’s gross margin. On an adjusted basis, it increased to 48.9% in the fourth quarter, compared with 46.6% a year earlier.

Hasbro Inc., Mattel’s archrival, has better margins -- though the gap narrowed in the past quarter.

The weakest spot for Mattel was sales of some dolls and Fisher-Price products. The American Girl line fell 20% compared to a year earlier, but Mattel will seek to stem the declines this year, Euteneuer said. Sales of Mattel’s Thomas & Friends toys have also been weak.

Kreiz is betting that licensing its key brands for movies and television shows will also help drive sales. A children’s TV series based on Thomas & Friends is scheduled to appear on Netflix Inc.’s service in March.

The company is also working on eight movies that use its intellectual property, including a Barbie movie starring Margot Robbie that will be written by Oscar nominees Greta Gerwig and Noah Baumbach.

To contact the reporter on this story: Kelly Gilblom in Los Angeles at kgilblom@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Rob Golum

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