Should You Buy Mattel or Hasbro After Weak Earnings?

Both Mattel and Hasbro failed to meet analyst expectations for the fourth quarter. Shares of Mattel fell by 10% post-earnings, making the stock look far more attractive than Hasbro's. This decline, coupled with a dividend increase, has pushed Mattel's yield above 4%, putting it on dividend growth investors' watchlists.

Feb 15, 2014 at 8:00AM

Shares of Mattel (NASDAQ:MAT), the world's largest toy company, collapsed when the company reported its fourth-quarter earnings on Jan 31. Demand for core brands like Barbie and Fisher Price crumbled, with both weak store traffic and a shift to electronic devices largely to blame, and a modest 5.5% dividend boost wasn't enough to quell investors' concerns.

Competitor Hasbro (NASDAQ:HAS) had a better holiday season, with revenue flat compared to 2012, and shares jumped by as much as 6% on the news. A 16% decline in revenue from the boys' category is concerning, though, and it seems that Hasbro is having some of the same problems that are plaguing Mattel. Are either of these toy companies worth buying?

The results at a glance
Mattel's fourth-quarter sales declined by 6% year over year, driven by a 10% decline in the North American market. Core brands were mostly weak, with sales of Barbie down 13%, Hot Wheels down 8%, Fisher-Price down 13%, and American Girl up 3%. A significant decline in selling, general, and administrative costs led to both operating income and net income rising year over year, but analysts were expecting earnings per share to be even higher. Mattel boosted its dividend by 5.5%, bringing the forward yield to about 4.1% after the post-earnings decline.

Hasbro's fourth-quarter sales were flat, with a decline in the North American segment balanced by an increase in the international segment. Sales in the boys' category fell 16% in the fourth quarter and 22% in the full year, with declines in franchise brands like Marvel the main culprit. Games revenue grew by 2% in the quarter and by 10% in the full year, with Magic: The Gathering and Monopoly both achieving growth. Sales in the girls' category rose 19% in the quarter and 26% in the full year, driven by strong Furby and My Little Pony sales. Adjusted net income rose slightly year over year, and the company boosted its dividend by 7.5%. The forward yield is now about 3.2%.

A clear choice
While Mattel's revenue decline and earnings miss didn't sit well with the market, Mattel looks like a more attractive investment than Hasbro. Here are some key figures worth paying attention to:

Metric MattelHasbro
Q4 operating margin 22.7% 14.3%
P/E ratio 14.3 18.7*
Dividend yield 4.1% 3.25%

*Based on adjusted earnings.

Shares of Mattel are significantly less expensive than shares of Hasbro based on 2013 earnings. Analysts expect both companies to grow earnings at about the same rate over the next five years, and although Mattel had a weaker holiday quarter, one bad quarter doesn't make a trend. The toy industry is not going away, and Mattel is still the leading toy company in the world.

Mattel manages a higher operating margin than Hasbro, the effect of having strong brands with a global presence. While those brands performed poorly in North America in the fourth quarter, this holiday season was difficult for many companies, and I don't think that it points to any long-term issues.

For dividend investors, Mattel is the clear choice, especially after the post-earnings sell-off. A 4.1% dividend yield from the leading toy company with a meaningful economic moat is an anomaly that should be taken advantage of, and while the dividend will likely grow only as fast as earnings, the high yield more than makes up for it.

Hasbro is more expensive than Mattel, although not outrageously so, and without greater growth prospects there's little reason to choose Hasbro over Mattel. Hasbro's dividend yield is still quite a bit higher than that of the S&P 500 index, but it pales in comparison to Mattel's.

The bottom line
After a brutal post-earnings decline, shares of Mattel are priced attractively compared to competitor Hasbro. Mattel has significant competitive advantages, and the extremely high dividend yield makes the stock a good choice for dividend growth investors. While the decline in North American sales is a concern, there's no real reason to believe that Mattel's problems are anything other than temporary.

We're not talking Monopoly money here...
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

 

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Hasbro 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers