Sector Snap: Toy makers fall on earnings

Shares of toymakers fell Wednesday as two weak first-quarter earnings reports from RC2 Corp. and Jakks Pacific Inc. indicated consumers are cutting back on toy buying even as toy makers are facing rising costs.

Oak Brook, Ill.-based RC2 Corp., which makes collectibles and infant products, reported first-quarter profit fell 75 percent and revenue dropped fell 17 percent to $93.3 million. The company blamed weak sales and lower reorders at retailers across all product categories. The company also lowered earnings guidance because of weak sales.

"Retailer customers remain very cautious and appear to be keeping inventories lean," Wedbush Morgan Securities analyst Chris White wrote in a note Wednesday. He kept his "Buy" rating on the stock due to its cheap share price and easier upcoming comparisons.

Shares fell $1.40, or 7.2 percent, to $18 during morning trading, after earlier trading to a 52-week low of $16.39. The stock had traded between $17.85 and $45.75 over the past year.

Meanwhile, Malibu, Calif.-based toymaker Jakks Pacific Inc. said first-quarter profit fell 73 percent, due to higher legal, product-testing and restructuring costs. Revenue rose 6 percent to $130.9 million but missed analyst expectations.

Shares fell $1.77, or 6.5 percent, to $25.67. The stock has traded between $18.19 and $31.42 during the past 52 weeks.

Consumers are cutting back on spending outside of essentials such as food as they face a rising cost of living, a weak housing market and tightening credit. At the same time, many toy makers are facing rising costs including increased product-testing costs following millions of toy recalls last year.

The two smaller toy makers reports follow Monday's reports from Mattel Inc. and Hasbro Inc.

Barbie-maker Mattel swung to a loss on higher costs and a big drop in sales of its Fisher-Price toys following last year's lead-related recalls. Hasbro bucked the trend, however, reporting a 14 percent profit increase that beat analysts' expectations on strong growth in its Transformers and Playskool brands.

On Thursday, Mattel shares rose 12 cents to $19.15 while Hasbro shares fell 16 cents to $34.02.