Tuesday, October 31, 2017

MATTEL quarterly - worse than expected, but price recovers in a day

Mattel got crushed after missing earnings, one day later the stock recovers the whole 15% loss, due to rumours on breakup or buyout. The thing that I love about Value Investing is that if you buy low enough, and there is enough asset backing - this is always going to be your 'out'. The same thing happened to DYNERGY, which I may write up later. Q317 mat transcript notes.md—/Users/hamm/OneDrive - AG/Investment/Equities/MAT/mat transcript notes

Results lower due to temporary trends

Negatives

  • toys are us and tighter inventory controls lead to declines
  • the toy box brands continue their weakness i.e Monster High, Ever after high, MEGA
  • retailers are holding less inventory - could be ecommerce shift or lower consumer demand during the QTR
  • margins continue lower
  • dividend cut, ratings got downgraded a few days later.

Positives

  • Interntational sales were flat (US was down 22%)
  • Barbie and Hot wheels are strong, content is improving
  • Cars hit targets, expect good licensing with Jurassic Park in 2018
  • New launches based around content such as Enchantimals are doing well
  • American Girl and Thomas turning around
  • 650m cost reductions over next 2 years
  • 170m of cost savings invested into - omni channel, content and gaming
  • New CEO, CFO, CTO, CCO , CPO, head of manufacturing, head of product development
  • China can grow 3-4x, new channels; Babytree, Alibaba, JD.

Iconic brand growth

We estimate that Hot Wheels has the potential to grow to 2 to 3x; Fisher-Price, 2x; and Barbie, 1.5x, over time. To accelerate our content efforts, we are in the final stages of regaining control over unexploited content rights for our power brands. This enables us to build a slate of premium content for our power brands and pursue more strategic dealmaking across our partners to unlock value from one of the best portfolios of kids and family IP in the world. MAT - Transcript: Q3 2017 Mattel Inc Earnings Call, Fri 10.27.17 8:00 AM

Workforce is being reduced

The second largest bucket is SG&A, as we rebalance our workforce and address other indirect areas of spend. A significant portion of this reduction will come from simplifying and delayering our corporate structure by increasing the average span of control from 4 to 6 for leadership positions and reducing the number of layers of leadership. In addition, we will be reducing consultants and temporary labor spend. In total, these restructuring efforts will account for more than half of the SG&A reduction. While this will be a global reduction in headcount, we will be careful not to impact customer-facing functions. We will also continue to invest in core capabilities and support areas of strategic growth, including emerging markets, digital content strategy and creative functions to support innovation. MAT - Transcript: Q3 2017 Mattel Inc Earnings Call, Fri 10.27.17 8:00 AM