LeapFrog Enterprises, Inc. Earnings: What to Expect Wednesday

The educational toy company seems to find a lucrative niche, but can LeapFrog bounce back from disappointment last quarter?

Feb 10, 2014 at 1:05PM

LeapFrog Enterprises (NYSE:LF) will release its quarterly report on Wednesday, and investors are bracing themselves for what could be another painful quarter for the company. The maker of educational toys and electronics has found ways to distinguish itself from larger competitors Mattel (NASDAQ:MAT) and Hasbro (NASDAQ:HAS), but the sales growth that investors needed to see from LeapFrog appears unlikely to materialize.

LeapFrog has a long history of producing toys with an educational bent, with a range of simple but useful products like its Explorer Smart Globe and its Alphabet Pal for learning letters. But the LeapPad series of educational tablets really pushed LeapFrog into the spotlight, highlighting a new niche that pitted the company against not only rival toymakers but also top technology companies. Now, the company is facing a big challenge in trying to keep its revenue and profits up. Let's take an early look at what's been happening with LeapFrog Enterprises over the past quarter and what we're likely to see in its report.

Lf
Source: LeapFrog Enterprises.

Stats on LeapFrog Enterprises

Analyst EPS Estimate

$0.14

Change From Year-Ago EPS

(77%)

Revenue Estimate

$215.41 million

Change From Year-Ago Revenue

(12%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can LeapFrog earnings rebound this quarter?
In recent months, analysts haven't been very optimistic about LeapFrog earnings, cutting their fourth-quarter estimates by $0.02 per share and reducing their full-year 2014 projections by more than 10%. The stock has continued its plunge, falling another 18% since early November.

LeapFrog's third-quarter report set the stage for the stock's disappointing performance this quarter. Even though the company beat earnings estimates, revenue for the quarter was weak. Even worse, CEO John Barbour pointed to a "weak retail climate" as the reason for sharply cutting its guidance for the holiday quarter. Even though some analysts thought that LeapFrog might be too conservative in its guidance, the stock fell more than 13% in the three days following the announcement.

The problem that LeapFrog is running into is that its products are hitting price points that give higher-power all-purpose tablets a reasonable chance to compete. For instance, Amazon.com offers a Kindle Fire HD that's less expensive than the LeapPad Ultra. Moreover, Samsung decided to offer its targeted Galaxy Tab 3 Kids tablet directly at the educational-device market, with the flexibility of a full-powered tablet as well as the parental controls and pre-loaded educational content that make it a worthy adversary to LeapFrog.

LeapFrog has some advantages against its competition. LeapFrog's reputation for specific educationally enriching content is strong, and many parents and educators prefer the way that LeapFrog has worked to try to supplement school curricula and studied how to position its products to give kids the best chance to succeed. Mattel has a Smart Tablet aimed at 3-to-7-year-old kids, but it's limited in comparison to LeapFrog, and both Mattel and Hasbro are concerned about the impact that tablets could have on their sales of conventional toys. Unless Amazon or Samsung is willing to make similar commitments to the student market, LeapFrog will have at least one lasting competitive edge over its rivals.

In the LeapFrog earnings report, watch to see if the company manages to top its own guidance yet again this quarter. LeapFrog has a history of doing better than investors expect, and it'll need to surprise investors this time around as well if it wants to get its stock price moving back in the right direction.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Hasbro, LeapFrog Enterprises, and Mattel. The Motley Fool owns shares of Amazon.com, Hasbro, LeapFrog Enterprises, and Mattel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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