What happened

The maker of Barbie and Hot Wheels reported its fourth consecutive quarter of improving profitability, gross margin, and earnings. Investors were impressed, sending the share price up 30.2% last month, according to data provided by S&P Global Market Intelligence.

Mattel (MAT 4.15%) has seen its stock fall dramatically over the last few years as the company suffered from mounting losses on the bottom line. But the second-quarter earnings report showed significant progress on management's turnaround plan to cut costs.

Two boys playing with a racing track.

Image source: Mattel.

So what

Mattel reported net sales of $860 million in the second quarter, an increase of 5% year over year excluding currency changes. Sales were driven by continued strength in the Hot Wheels and Barbie brands

On the bottom line, the company is still not profitable, but it's making huge strides. Management is ahead of schedule in cutting $650 million out of operating costs by the end of the year. In the second quarter, the company showed an operating loss of $51 million, representing an improvement of $138 million over the year-ago quarter. 

The company also signed a new global licensing agreement with Disney and Pixar to make toys for all of Pixar's film properties and upcoming releases. Plus, Mattel Films recently partnered with Blumhouse Productions to make a feature film based on the Magic 8 Ball. The company now has six films in development with some of the biggest studios in Hollywood. 

Now what

Management expects sales to be flat this year over 2018 on a constant currency basis. However, guidance calls for profitability to be up significantly versus 2018. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is expected to double year over year to between $350 million and $400 million, as management continues to simplify operations to improve margins. 

CEO Ynon Kreiz believes the company will finish the year strong. During the conference call, he said, "We believe we are well positioned for the second half of the year and remain focused on methodical execution and the creation of long-term shareholder value." 

Mattel doesn't provide guidance specifically for EPS, but analysts expect adjusted earnings to improve to a loss of $0.44 per share this year, compared with a loss of $1.14 in 2018.