Toy makers Hasbro Inc. and Mattel Inc. report earnings for the fiscal third quarter on Monday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Toy makers are facing high prices for commodities such as resin and have had to pass some of the costs on to consumers via higher selling prices.
They are also facing tough competition from electronic gadgets such as the iPod amid a difficult economic environment. Consumers have cut back on spending amid financial-market turmoil, a shaky job market and rising food prices. Toys are somewhat buffered from the environment since parents cut back on themselves before children, but they are not completely immune.
Hasbro has found strength from sales of its products tied into movies including last year's "Transformers," and this year's "Iron Man," "The Incredible Hulk," and "Indiana Jones and the Kingdom of the Crystal Skull."
During the quarter the Pawtucket, R.I.-based Hasbro also updated its "Clue" and "Monopoly" board games with new versions.
El Segundo, Calif.-based Mattel Inc., meanwhile, won a legal victory during the quarter. A jury awarded the company $100 million in damages in its fight with MGA Entertainment Inc. over the pouty-lipped Bratz dolls. Mattel has also filed court papers asking a federal judge to block MGA from making or selling Bratz dolls.
BY THE NUMBERS: Analysts polled by Thomson Reuters, on average, expect Hasbro to report earnings of 86 cents per share on revenue of $1.27 billion. Analysts expect Mattel to report earnings of 71 cents per share on revenue of $1.96 billion.
ANALYST TAKE: BMO Capital Markets analyst Gerrick Johnson said in a note to investors on Oct. 8 that expectations for toy companies are for the most part low going into the quarter.
"Consumer activity has looked slow and retail inventories appear thin, posing a challenge for top-line growth in third quarter," Johnson wrote.
Price increases during the quarter should help offset unit sales declines and rising input costs, he said. However, international sales won't see the same benefit from a weaker dollar as they did last year since the dollar has strengthened.
WHAT'S AHEAD: Analysts will be looking for any comment on commodity prices, which have eased somewhat, and any downward revision to guidance.
"We think earnings numbers for the rest of 2008 and 2009 will continue to be revised down (as they have begun to creep over the last few weeks), but as the dust settles after the market meltdown, we could see some multiple expansion for what is generally known as a defensive sector and industry," Johnson wrote.
STOCK PERFORMANCE: Hasbro shares rose about 2 percent during the quarter and Mattel shares gained about 5 percent.
