Sign in

    Mattel Inc (MAT)

    Business Description

    Mattel, Inc. (MAT) is a global leader in the toy and family entertainment industry, known for its iconic brand portfolio and innovative products. The company creates toys, games, and experiences that inspire and entertain children, while also expanding its intellectual property into entertainment, digital, and live experiences. Mattel's offerings include dolls, vehicles, infant and preschool toys, action figures, games, and building sets, catering to a wide range of age groups and interests.

    1. North America Segment - Sells toys and consumer products across categories like Dolls (e.g., Barbie, Disney Princess), Infant/Toddler/Preschool (e.g., Fisher-Price), Vehicles (e.g., Hot Wheels, Matchbox), and Action Figures/Games in the United States and Canada.
    2. International Segment - Markets and sells toys and products similar to the North America segment, tailored for regions such as Europe, Latin America, and Asia.
    3. Dolls
      • Barbie - Empowers children with a diverse range of dolls and accessories since 1959.
      • American Girl - Offers historical and contemporary 18" dolls, books, and accessories.
      • Disney Princess and Disney Frozen - Features characters and stories from Disney's popular franchises.
      • Monster High - Focuses on unique, fashion-forward dolls with a spooky theme.
      • Polly Pocket - Provides compact, portable playsets and dolls.
    4. Infant, Toddler, and Preschool
      • Fisher-Price - Develops enriching toys for young children, including Little People.
      • Thomas & Friends - Offers train-themed toys and content that teach life lessons.
      • Power Wheels - Produces ride-on vehicles for toddlers and preschoolers.
    5. Vehicles
      • Hot Wheels - Known for high-performance toy cars and tracks, appealing to kids and collectors.
      • Matchbox - Features realistic, adventure-themed vehicles.
      • Cars (Disney Pixar) - Brings characters from the Cars movie franchise to life through toys.
    6. Action Figures, Building Sets, Games, and Other
      • Masters of the Universe - Includes action figures and playsets inspired by the fantasy franchise.
      • MEGA - Offers building sets for creative play.
      • UNO - A globally popular card game.
      • Lightyear (Disney Pixar) - Features toys based on the Buzz Lightyear character.
      • Jurassic World (NBCUniversal) - Provides dinosaur-themed action figures and playsets.
      • WWE - Includes wrestling action figures and accessories.
      • Star Wars (Disney's Lucasfilm) - Features toys and collectibles from the Star Wars universe.

    Q3 2024 Summary

    Initial Price$16.33July 1, 2024
    Final Price$19.13October 1, 2024
    Price Change$2.80
    % Change+17.15%

    What went well

    • Mattel expects growth in Q4 and is well-positioned for the holiday season, with increased marketing, more shelf space, and positive retailer sentiment. The company anticipates gaining market share and delivering a good holiday season.
    • Fisher-Price is showing strong momentum, growing for the second consecutive quarter, and the Fisher-Price Wood line is being expanded globally, which positions it for continued growth.
    • Mattel's digital gaming joint venture, Mattel163, is expected to exceed $200 million in gross billings this year, contributing to profitability. The company sees digital gaming as an important growth driver for both top line and profitability.

    What went wrong

    • Mattel adjusted its full-year net sales guidance to be "comparable to slightly down", reflecting a cautious outlook due to year-to-date performance.
    • Despite a significant reduction in the tax rate, the company's adjusted EPS guidance remained unchanged, indicating potential underlying issues affecting profitability.
    • SG&A expenses are expected to increase slightly as a percentage of net sales, driven by higher compensation expenses and investments in areas like digital gaming, which may pressure operating margins.

    Q&A Summary

    1. Change in Sales Guidance
      Q: Why did the top-line guidance change?
      A: The company adjusted its sales guidance to "comparable to slightly down" based on an assessment of year-to-date results and outlook for the remainder of the year. Despite this, they expect a good holiday season, with sales growth in the fourth quarter, outpacing the industry and gaining market share.

    2. Q4 Margin Outlook
      Q: Why are Q4 margins pressured?
      A: Margins in Q4 are expected to be slightly down due to anticipated cost inflation and wrapping benefits from last year's Barbie movie proceeds. Additionally, the company plans for a significant increase in advertising in Q4, impacting margins as they shift advertising spend to support the holiday season.

    3. Optimism for 2025 Growth
      Q: Why are you optimistic about industry growth in 2025?
      A: The toy industry is expected to return to growth in 2025, driven by strong fundamentals such as the importance of toys to consumers, retailer prioritization, and positive drivers like toy-related movies and growing adult segments. The company believes it is well-positioned to capitalize on this growth with strong brands and strategic investments.

    4. Free Cash Flow Risks
      Q: Do changes in retailer payment terms affect free cash flow guidance?
      A: There is no impact on the company's free cash flow guidance of $500 million, even with a slight uptick in capital expenditures. Changes in retailer payment terms do not pose a risk to working capital or cash flow.

    5. Tariff Exposure and Supply Chain
      Q: How are you managing tariff risks and China exposure?
      A: The company maintains a flexible and geographically diversified supply chain, producing products in six countries. Approximately 50% of manufacturing is in China, lower than the industry average of 80–85%. They continue to reduce dependence on China, ensuring responsiveness to regulatory changes and mitigating tariff risks.

    6. Share Repurchase Plans
      Q: What is the outlook for share repurchases?
      A: The company has been active in share repurchases, buying back $68 million in Q3, bringing the year-to-date total to $268 million and $471 million since resuming repurchases last year. They plan to continue repurchasing shares consistent with capital allocation priorities, funded by free cash flow.

    7. Cost Savings Program
      Q: How is the cost savings program progressing?
      A: The Optimizing for Profitable Growth Program is off to a strong start, with year-to-date savings of $60 million, surpassing the initial 2024 target. The full-year expectation is increased to $75 million, primarily from cost of goods sold. The company remains confident in achieving the $200 million savings target by 2026.

    8. Inflation Impact on Margins
      Q: How will inflation affect margins moving forward?
      A: After benefiting from cost deflation earlier in the year, the company expects some cost inflation in Q4, particularly in materials and ocean freight. It's too early to comment on 2025, but they acknowledge that deflation benefits are diminishing and are monitoring the impact on margins.

    9. Retailer Sentiment and Inventory
      Q: How do retailers feel about the holiday season?
      A: Retailer sentiment is positive, with toys prioritized as a strategic category. The company collaborates closely with retail partners, ensuring appropriate inventory levels and strong holiday plans, including new products, more shelf space, and significantly increased advertising.

    10. Digital Gaming Initiatives
      Q: What's the progress on digital gaming?
      A: The company is expanding its digital gaming strategy with three components: licensing, the Mattel163 joint venture with NetEase, and self-publishing. Mattel163 is expected to exceed $200 million in gross billings this year with attractive margins. They are developing their first self-published game, seeing digital gaming as an important growth driver.

    11. Consumer Shift to Value Products
      Q: Are consumers shifting to value products?
      A: The company is aware that some consumers are seeking value due to economic pressures. They are well-positioned, offering a range of price points from affordable items like Hot Wheels singles to higher-end products, catering to diverse consumer needs without significant price mix headwinds anticipated.

    12. Fisher-Price Expansion
      Q: What's the status of the Fisher-Price Wood line expansion?
      A: After an exclusive period with Walmart, the Fisher-Price Wood line is now expanding globally. The brand is experiencing strong momentum, growing for the second consecutive quarter, with new leadership and strategy reinforcing its position as the #1 brand in the category.

    13. Gross Billings vs. POS Performance
      Q: Why did gross billings outpace POS?
      A: Variations between POS and gross billings are due to the inherent volatility in retail inventory movements. Year-to-date, both metrics are down slightly and aligned. Retail inventories are down high single digits, with healthy quality, positioning the company well for the holiday season.

    14. Capital Expenditures
      Q: What are the plans regarding CapEx and the new design center?
      A: The company purchased a new building in El Segundo for its global design center, replacing an existing leased facility. This has slightly increased CapEx guidance, with further build-out expected next year. Updated CapEx projections will be provided as plans progress.

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Ynon KreizChairman of the Board and Chief Executive Officer2017Ynon Kreiz has served as Chairman of the Board and Chief Executive Officer of Mattel since 2017. He has extensive experience in corporate leadership, operational restructuring, finance, multimedia, entertainment, and content.
    Anthony DiSilvestroChief Financial OfficerAugust 2020Anthony DiSilvestro has been the Chief Financial Officer of Mattel since August 2020. He previously served as Senior Vice President and Chief Financial Officer of Campbell Soup Company from May 2014 to September 2019.
    Steve TotzkePresident and Chief Commercial OfficerApril 2022Steve Totzke has been serving as the President and Chief Commercial Officer of Mattel since April 2022. He was previously the Executive Vice President and Chief Commercial Officer from July 2018 to March 2022.
    Jonathan AnschellExecutive Vice President, Chief Legal Officer, and SecretaryJanuary 2021Jonathan Anschell has been serving as the Executive Vice President, Chief Legal Officer, and Secretary at Mattel since January 2021. He was previously the Executive Vice President and General Counsel at ViacomCBS Media Networks.
    Roberto IsaiasExecutive Vice President and Chief Supply Chain OfficerFebruary 2019Roberto Isaias has been the Executive Vice President and Chief Supply Chain Officer at Mattel since February 2019. He held various leadership positions at Mattel, including Senior Vice President and Managing Director Latin America.

    Questions to Ask Management

    1. Despite the adjusted tax rate projection decreasing significantly from previous estimates, you maintained your adjusted EBITDA and EPS guidance unchanged; can you clarify what offsets are compensating for the lower tax rate, and why EPS guidance hasn't increased accordingly?

    2. You mentioned that SG&A expenses as a percentage of sales are expected to increase slightly due to investments in digital gaming and information technology; given the modest decline in net sales and the challenging market environment, can you elaborate on the expected returns from these investments and the timeline for them to contribute positively to your profitability?

    3. With capital expenditures forecasted to rise due to the purchase of a new global design center, how will this impact your free cash flow and capital allocation priorities, particularly regarding share repurchases and debt reduction?

    4. Given that the toy industry is expected to decline modestly in 2024 and recognizing potential macroeconomic headwinds, what gives you confidence in expecting growth in the fourth quarter and a good holiday season, and what are the risks that could prevent you from achieving this outlook?

    5. Considering the pressure on certain consumer cohorts seeking value products and potential price mix headwinds, how are you balancing the need to offer a range of price points with maintaining your gross margins, and what steps are you taking to mitigate any potential margin erosion?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateFebruary 5, 2024
    End Date/DurationNo expiration date
    Total additional amount$1.00 billion
    Remaining authorization$731.7 million as of September 30, 2024
    DetailsReflects confidence in strategy to grow sales, earnings, and cash flow; aims to create long-term shareholder value; funded by free cash flow; demonstrates improved financial position

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted EBITDA: $975 million to $1.025 billion.
      2. Adjusted EPS: $1.35 to $1.45.
      3. Adjusted Tax Rate: 21% to 22%.
      4. Capital Expenditures: $200 million to $225 million.
      5. Free Cash Flow: Approximately $500 million.
      6. Net Sales (Full Year): Comparable to slightly down in constant currency.
      7. Category Performance (Full Year):
        • Vehicles: Expected to grow.
        • Infant, Toddler, and Preschool: Expected to be comparable.
        • Challenger Categories: Expected to be comparable.
        • Dolls: Expected to decline.
      8. Power Brands (Full Year):
        • Hot Wheels: Expected to grow.
        • Fisher-Price: Expected to grow.
        • Barbie: Expected to decline.
      9. Adjusted Gross Margin (Full Year): Approximately 50%.
      10. Advertising Expense: Stable as a percentage of net sales.
      11. Adjusted SG&A: Slight increase as a percentage of net sales.
      12. Cost Savings (2024): $75 million.

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      • Net Sales: Comparable to the prior year in constant currency.
      • Adjusted Gross Margin: 48.5% to 49%.
      • Adjusted EBITDA: $975 million to $1.025 billion.
      • Adjusted EPS: $1.35 to $1.45.
      • Free Cash Flow: Approximately $500 million.

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Net Sales: Comparable to the prior year in constant currency.
      2. Adjusted Gross Margin: 48.5% to 49%.
      3. Adjusted EBITDA: $975 million to $1.025 billion.
      4. Adjusted EPS: $1.35 to $1.45.
      5. Free Cash Flow: Approximately $500 million.

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Net Sales: Comparable to the prior year in constant currency.
      2. Adjusted Gross Margin: 48.5% to 49%.
      3. Adjusted EBITDA: $975 million to $1.025 billion.
      4. Adjusted EPS: $1.35 to $1.45.
      5. Adjusted Tax Rate: 23% to 24%.
      6. Capital Expenditures: $175 million to $200 million.
      7. Free Cash Flow: Approximately $500 million.
      8. POS (Point of Sale): Comparable to 2023.
      9. Category Performance:
        • Vehicles: Expected to grow.
        • Infant, Toddler, and Preschool: Comparable to the prior year.
        • Challenger Categories: Comparable to the prior year.
        • Dolls: Expected to decline.
      10. Cost Savings: $60 million.