Mattel Reports Q2 2014; Completes MEGA Brands Acquisition
Mattel, Inc., reported 2014 second quarter financial results. For the quarter, the company reported net income of $28.3 million, or $0.08 per share, which includes a tax benefit of $0.11 per share and a negative impact of $0.06 per share resulting from the MEGA Brands acquisition and integration costs, compared to last year’s second quarter net income of $73.3 million, or $0.21 per share.
“In the second quarter, we made significant progress across a number of initiatives to better position Mattel in the second half of the year and beyond,” said Bryan G. Stockton, Mattel chairman and CEO. “For example, we completed the acquisition of MEGA Brands, reduced inventories, strengthened our management team, shifted marketing spend to the back half of the year, and exercised strong controls on SG&A expenses. And while results for the quarter did not meet our expectations, we did see improving POS trends. As we move into the second half of the year and the all-important holiday season, we need to drive POS higher by bringing innovative products to market, making additional advertising investments and optimizing the effectiveness of our marketing spend.”
Financial Overview
For the quarter, net sales were $1.06 billion, down 9 percent compared to $1.17 billion last year. On a regional basis, second quarter gross sales decreased 8 percent in the North American Region, which consists of the U.S., Canada, and American Girl, including a 1 percentage point unfavorable impact from changes in currency exchange rates. For the International Region, gross sales decreased 9 percent, including a 2 percentage point unfavorable impact from changes in currency exchange rates. Operating income for the quarter was $1 million, compared to the prior year’s operating income for the quarter of $94.8 million. The company’s debt-to-total capital ratio as of June 30, 2014, was 41.8 percent.
Cash flows used for operating activities were approximately $79 million, compared to approximately $286 million in 2013, driven by lower working capital usage. Cash flows used for investing activities were approximately $525 million, an increase of approximately $393 million, driven by the acquisition of MEGA Brands. Cash flows from financing activities and other were approximately $83 million, compared to cash flows used for financing activities and other of approximately $95 million in 2013. The change was primarily due to lower repayments of long-term debt, partially offset by lower proceeds from stock option exercises.
Capital Deployment
The company announced that its board of directors declared a third quarter cash dividend of $0.38 per share on the company’s common stock. The dividend will be payable on September 19, 2014, to stockholders of record on August 27, 2014. The dividend is the third of four quarterly dividends the company expects to pay this year, reflecting an annualized dividend of $1.52 per share, which represents a 6 percent increase to last year’s total dividends. During the second quarter of 2014, the company repurchased 2.6 million shares of its common stock at a cost of approximately $100 million.
Sales by Brand
Mattel Girls and Boys Brands
For the second quarter, worldwide gross sales for Mattel Girls and Boys Brands were $689 million, down 13 percent versus the prior year. Worldwide gross sales for the Barbie brand were down 15 percent. Worldwide gross sales for Other Girls brands were down 11 percent, primarily due to Monster High, partially offset by Disney Princess and Ever After High. Worldwide gross sales for the Wheels category, which includes the Hot Wheels and Matchbox brands, were down 3 percent. Worldwide gross sales for the Entertainment business, which includes Radica and Games, were down 19 percent.
Fisher-Price Brands
Second quarter worldwide gross sales for Fisher-Price Brands, which includes the Fisher-Price Core, Fisher-Price Friends, and Power Wheels brands, were $328.8 million, down 17 percent versus the prior year.
American Girl Brands
Second quarter gross sales for American Girl Brands, which offers American Girl-branded products directly to consumers, were $83.1 million, up 6 percent versus the prior year.
Construction and Arts & Crafts Brands
Second quarter gross sales for Construction and Arts & Crafts Brands, which includes the MEGA Bloks and RoseArt brands, were $61.6 million. Mattel acquired MEGA Brands, Inc., on April 30, 2014.
Hasbro Reports Q2 Results
Hasbro, Inc., reported financial results for the second quarter 2014. Net revenues for the second quarter 2014 increased 8 percent to $829.3 million from $766.3 million in 2013. Foreign exchange had an unfavorable $1.2 million impact on second quarter revenues.
Net earnings for the second quarter 2014 were $33.5 million, or $0.26 per diluted share, compared to $36.5 million, or $0.28 per diluted share, in 2013. Excluding an unfavorable tax adjustment of $13.8 million, or $0.10 per diluted share, adjusted net earnings for the second quarter 2014 were $47.3 million, or $0.36 per diluted share. Excluding pre-tax partial pension settlement charges of $2.5 million, or $0.01 per diluted share, associated with restructuring actions, adjusted net earnings for the second quarter 2013 were $38.3 million, or $0.29 per diluted share.
“Second quarter performance reflects our continuing reimagination of brands across the brand blueprint and the positive impact of our investment and focus on strategic growth opportunities within Hasbro,” said Brian Goldner, Hasbro’s president and CEO, in a statement. “Hasbro Franchise Brands, Emerging Markets, and the Entertainment and Licensing segment posted strong second quarter growth. The combination of great brand innovation and storytelling is resonating with consumers globally to deliver revenue and profit improvements across multiple product categories and segments.”
Financial Overview
U.S. and Canada segment net revenues of $383 million decreased 2 percent compared to $389.2 million in 2013. The segment’s results reflect growth in the Boys and Girls product categories offset by declines in the Games and Preschool categories. The U.S. and Canada segment reported operating profit of $46.9 million versus $59 million in 2013.
International segment net revenues increased 17 percent to $396.8 million compared to $340.2 million in 2013. Revenues in the International segment reflect double-digit growth in Europe, Latin America, and Asia Pacific as well as growth in the Boys, Girls, and Preschool product categories. The International segment reported operating profit of $29.2 million, up 98 percent versus $14.8 million in 2013.
Entertainment and Licensing segment net revenues increased 35 percent to $47.7 million compared to $35.3 million in 2013. The segment benefited from growth in lifestyle licensing, digital gaming, and the addition of Backflip Studios. The Entertainment and Licensing segment reported 295 percent growth in operating profit to $14.6 million compared to $3.7 million in 2013.
Second quarter 2014 net revenues in the Boys category increased 32 percent to $335.8 million behind growth in Transformers and Marvel products.
Games category revenues decreased 12 percent in the quarter to $225.7 million. Growth in franchise brand Monopoly, The Game of Life, initial shipments of Simon Swipe (one of several new gaming initiatives launching for the holiday season), and the contribution of Backflip Studios all contributed positively to the category. These gains were offset by declines in several brands, including Twister, Duel Masters, and Magic: The Gathering.
The Girls category grew 10 percent in the second quarter 2014 to $163.8 million. My Little Pony, My Little Pony Equestria Girls, and Nerf Rebelle continued to drive the strong growth in the category.
Preschool category revenues decreased 4 percent to $103.9 million in the second quarter 2014. Play-Doh and Transformers Rescue Bots revenues increased but were more than offset by declines in other Preschool initiatives, including core Playskool and Sesame Street products.
Dividend and Share Repurchase
Hasbro paid $55.7 million in cash dividends to shareholders during the second quarter 2014. The next quarterly cash dividend payment of $0.43 per common share is scheduled for August 15, 2014, to shareholders of record at the close of business on August 1, 2014.
During the second quarter, Hasbro repurchased a total of 2.5 million shares of common stock at a total cost of $136.3 million and an average price of $54.06 per share. Through the first two quarters, the company repurchased 4 million shares of common stock at a total cost of $216.8 million and an average price of $54.17 per share. At quarter-end, $308.1 million remained available in the current share repurchase authorization.
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