Each quarter's earnings season brings an unusual highlight for me: watching executives plagued by unfavorable news try to spin a brighter version of their company's gloomy story. After a string of recalls over the past few months harmed its reputation as a toymaker and cost its shareholders $40 million, you have to wonder what good news Mattel
Of course, executives never come to a conference call without their best game face, not to mention an armload of convincing spin on any bad news. But for once, wouldn't it just be refreshing if they quit whitewashing and faced facts? A rosy outlook from this toymaker just isn't believable; as my Foolish compadre Rick Munarriz noted, Mattel's got issues.
Not too long ago, Mattel had a good story to tell, reporting impressive results. Though the company wasn't playing around, numerous recalls bred distrust among its customers. In this quarter's conference call, CEO Robert Eckert stated that negative impressions about the toymaker "have clearly bottomed out." That's far less clear to me, since overall sales rose mainly because of favorable currency translations from overseas revenue, rather than increased sales volumes.
At least the company hasn't yet make a boneheaded play like RC2
While overall sales weren't impressive, international performance still looked robust compared with domestic figures. However, the company is facing a potential hole of more than $44 million this holiday season, if Brazil doesn't approve its export licenses soon. The South American country accounts for about 2% of Mattel's fourth-quarter sales. The country suspended its licenses and banned imports from the toymaker pending an investigation into the company's compliance with local safety regulations.
It's also under fire here at home for a holier-than-thou attitude with the Consumer Product Safety Commission, which alleges that Mattel routinely ignores rules requiring it to report problems within 24 hours of becoming aware of them.
Mattel's margins are getting squeezed, and any increases realized in brands like Fisher-Price resulted only from weak U.S. currency. Back that out, and even foreign markets, where 40% of the company's revenues originate, look bleaker than Mattel's "What, me worry?" stance would suggest.
Judging by the relatively untainted Hasbro
The company should admit its problems and address the ways it's correcting them, rather than trying to call a bottom in consumer sentiment, as Eckert tried to do. I expect this toymaker will have a very blue Christmas before things begin to improve.
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