Mattel, Inc. (MAT): Are These Companies Worth a Second Look?

Its earnings season! This is a time of the quarter when companies report and Wall Street gives thumbs up or thumbs down based on whether the companies meet or disappoint their expectations (emphasis mine). Sometimes when a company disappoints Wall Street the subsequent decline can give you a better entry point to purchase shares. However, it always pays to do your research to see if a particular company is deserving of your investment dollars.

Toy makers feel the pain

Toy makers Mattel, Inc. (NASDAQ:MAT) and Hasbro, Inc. (NASDAQ:HAS) both missed Wall Street expectations in their latest earnings announcements. Mattel’s revenue of $1.17 billion and earnings per share of $0.21 fell below Wall Street’s expectation of $1.22 billion in revenue and $0.32 in earnings per share according to AP. Moreover, Hasbro earned only $0.28 per share with analysts expecting $0.34 per share.

Mattel, Inc. (NASDAQ:MAT)’s stock price declined 7% after the release of its earnings. Hasbro, Inc. (NASDAQ:HAS)’s price actually climbed after its announcement due to hopes riding on its new merchandise agreement with The Walt Disney Company (NYSE:DIS).

Mattel, Inc. (NASDAQ:MAT)’s traditional brands such as Barbie and its Wheels category declined 12% and 6% respectively. Mattel’s newer toy innovations such as Monster High contributed to an increase of 23% in its other girls brand segment.

Hasbro, Inc. (NASDAQ:HAS) saw a sharp decline in its boys segment due to tough comps stemming from “major motion pictures in 2012” or lack thereof in 2013. Its games, girls, and preschool segments all saw jumps of 19%, 43%, and 4% in revenue.

Two major trends are affecting the direction of this industry. First, the digital world increasingly occupies the child’s play time. Second, blockbuster movies surrounding toy lines tend to boost interest in the products.

In response to the first trend, Mattel, Inc. (NASDAQ:MAT) plans to release digital Barbie products during the holiday season. The second trend also explains the slumps in Mattel’s traditional Barbie and Hot Wheels segments. Mattel fails to innovate in creating storylines centering on Barbie and Hot Wheels in the face of competition such as Disney’s Cars or Hasbro, Inc. (NASDAQ:HAS)’s My Little Pony.

Hasbro also understands the importance of the slow shift from physical toy play to the digital world. In response it purchased a 70% stake in the digital game company Backflip. Hasbro, Inc. (NASDAQ:HAS) can leverage the skills from this acquisition to make games based on old brands to garner attention from the 21^st century digital consumer.

In stark awareness of what a major blockbuster film can do for the demand of a product line Hasbro, Inc. (NASDAQ:HAS) also extended its merchandise agreement with Walt Disney through 2020. Hasbro will continue to pay Disney for the privilege of making toys based on the popular Marvel based films and the upcoming Star Wars films expected later in the decade.

When Wall Street worries

Online auction house, payment processor, and e-commerce platform eBay Inc (NASDAQ:EBAY) earned $0.63 per share which resided within Wall Street expectations. However, management remarks about “headwinds” for the latter part of 2013 stemming from slowdowns in markets such as Europe and South Korea sent the stock reeling 6% after the earnings release.