Mattel beats profit estimates as cost cuts take hold

(Reuters) – Mattel Inc (MAT.O) on Thursday beat estimates for quarterly profit as it benefited from a robust cost-cutting program, even as holiday season sales of its flagship Barbie brand in North America were pressured by Hasbro Inc’s (HAS.O) “Frozen” dolls.

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FILE PHOTO: The Mattel company logo is seen at the 114th North American International Toy Fair in New York City, U.S., February 21, 2017. REUTERS/Stephanie Keith/File Photo

Shares rose nearly 5% to $15.11 in extended trading.

The company exceeded its initial 2019 cost-cutting target of $650 million by 35% as Chief Executive Officer Ynon Kreiz looks to improve profitability through cutting jobs, closing manufacturing facilities and reducing products manufactured.

Mattel now expects $50 million in savings in 2020 from a “capital light program”, which includes the closure of four factories in Asia, Mexico and Canada, Kreiz told Reuters.

“We’re changing the way we operate,” said Kreiz, who took the helm in 2018.

Mattel reported an adjusted profit of 11 cents per share in the fourth quarter ended Dec. 31, racing past expectations of 1 cent, according to IBES data from Refinitiv.

However, holiday quarter net sales fell 3.3% to $1.47 billion and missed estimates of $1.50 billion as the November release of Disney’s (DIS.N) “Frozen 2” re-energized demand for rival Hasbro’s dolls based on the franchise’s main characters Elsa, Anna and Olaf.

Mattel said gross sales in North America fell 1%, mainly due to a decline in the Barbie and American Girl doll sales.

Hasbro bagged the rights to make dolls based on the Disney Princess movies from Mattel in 2014, at a time when kids were increasingly turning to big Hollywood blockbusters and away from their traditional toys.

The releases generated more competition for Mattel’s over 60-year old Barbie brand in an already sluggish holiday season for toy sales.

Major retailer Target Corp (TGT.N) also said toy sales during the period were flat, as launches of new original products and brands slowed.

Chief Financial Officer Joseph Euteneuer, on a conference call with analysts, said the coronavirus outbreak would likely cause production delays in China, which may impact Mattel’s first quarter results.

However, Kreiz told Reuters that Mattel’s “Baby Yoda” plush toy, based on a viral sensation character from the “The Mandalorian” Star Wars series on Disney+, is still on schedule to hit shelves in April.

Mattel also said its iconic children’s series “Thomas & Friends” will move to Netflix (NFLX.O) from Nickelodeon in the United States later this year.

The move is part of Mattel’s strategy to turnaround sales of toys based on the 75-year old talking tank engine, which Euteneuer said “fell off the track”.

Reporting by Uday Sampath in Bengaluru; Editing by Sriraj Kalluvila and Uttaresh.V

Our Standards:The Thomson Reuters Trust Principles.

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