New York -- They may still rely on Barbie or G.I. Joe for fun and profits, but the nation's leading toymakers are maturing into the sort of fine young adults Wall Street fancies -- diversified companies with steady income streams and good growth potential.
That trend, plus the memory of strong holiday sales, are likely to spark optimism at the sold-out 90th Annual American International Toy Fair, which opens tomorrow in Manhattan. Although many small companies will be gambling -- as they do every year -- that their latest toy will see them through the year, the two biggest toymakers, Hasbro Inc. and Mattel Inc., are looking forward to record profits and growth.
"There's been a huge amount of consolidation in the industry, and it's mainly been the largest players eating the smallest," said Jill S. Krutick, a toy industry analyst for Salomon Bros. Inc.
The rise of dominant companies is something new in the toy industry.
Hasbro and Mattel once were as small as their toddling customers. But after a decade marked by internal growth and acquisitions, they control about 40 percent of toy manufacturers' $10 billion in sales. And they are the only toy companies able to generate big profits year after year. Except for middling-sized Tyco Toys Inc. and Fisher-Price Inc., no other company accounts for more than 5 percent of industry sales.
The most dramatic change has occurred at Rhode Island-based Hasbro, the world's biggest toy company. As recently as 1982 it was a smallish, $136 million family business that relied on a few old warhorses, such as G.I. Joe, Lite-Brite and Tinkertoys.
But Hasbro's revenues grew to an estimated $2.3 billion in 1992, with profits up from $7 million to an estimated $170 million. Meanwhile,steady growth has helped Hasbro's stock rocket from to $32 since mid-1990, and most major brokerages rate it a "buy."
"It's quite a feat what they've accomplished. They've managed to break out of the typical seasonal cycle and, quarter after quarter, deliver steady profits," Ms. Krutick said.
A big step came in 1984, when Hasbro bought Milton Bradley, the board game manufacturer. There have been plenty of other acquisitions, too. Hasbro has gulped down companies like Tonka, Coleco, Parker Bros. and Kenner and those firms' well-known trucks, Cabbage Patch Kids, board games and action figures.
Such growth has given Hasbro a reputation as the toy company of tomorrow. Instead of relying on one clever toy that kids might love one year and reject the next, Hasbro has become a true conglomerate. No single product accounts for more than 5 percent of the company's sales.
Coleco provided a sobering lesson for Hasbro -- and the whole toy industry -- in the 1980s. Coleco had phenomenal success with its cuddly Cabbage Patch dolls, which once generated $600 million in annual sales and had retailers scrambling to keep their shelves stocked. But the dolls' novelty wore off and sales plummeted to $35 million by 1989.
With most of its revenues gone, Coleco sold out to Hasbro, which has since revived the Cabbage Patch line to a $100 million business.
"If the tides turn on a product, many companies are finished. We didn't want to be in that position," said Hasbro spokesman Wayne Charness.
The other industry giant, Mattel, looks less like a conglomerate -- it still relies on the Barbie doll line for $1 billion of its estimated $2 billion in sales. But the California-based company has started buying smallercompanies, has signed licensing agreements to diversify into new fields and has moved aggressively overseas.
In 1991, Mattel entered the market for board and card games by buying International Games Inc., maker of hot-selling Uno. Last year, Mattel bought Aviva Sports Inc., which specializes in sports equipment for children -- a deal designed to boost summer sales and soften the impact of the winter holiday season.
Mattel also has moved to overcome its main weakness -- a lack of products for very young children. In 1987 it signed a licensing agreement with Walt Disney to make preschool toys. The companies expanded the agreement in 1991, to allow Mattel to make toys from more Disney characters and to sell its products )) in Disney theme parks.
Mattel's income statement and stock price reflect this expansion. After losing $114 million in 1987 on $1 billion in sales, Mattel has doubled sales and earned a record $144 million last year. Meanwhile, the stock has jumped from $10 to about $25 a share over the past 30 months.
As they broadened their product lines, both Hasbro and Mattel have looked for international sales, too.
Mattel, which generates half its revenues overseas, believes that foreign sales will outstrip domestic sales over the next two years as it pushes into Europe and Japan, the world's second-biggest toy market.
"We found that the average U.S. girl has eight Barbie dolls, but overseas it's just one to two. There's room to grow there," Mattel spokeswoman Donna Gibbs said.
Hasbro also is moving overseas. Last year it bought Japan's Nomura Toy Co. and Palmyra, a distributor in China, Singapore and Malaysia. Hasbro also opened offices in Hungary, Mexico and Greece.
Neither Mattel nor Hasbro is immune from some challenges, such as the rise of video games. Video sales -- led by Nintendo and Sega -- were estimated at more than $3 billion last year.
Another problem could develop if the Clinton administration uses tariffs to penalize China for human rights violations. About one quarter of the toys sold in this country are made in China, so tariffs on Chinese-made toys could drive up prices.
Still, such worries will be far from the minds of toy company executives as the Toy Fair opens. For the first time in the fair's history, all five exhibit halls have been sold out, and a record 1,036 exhibitors from 20 countries will participate.
"The fact that so many people are exhibiting shows that they think the toy companies will be willing to take a risk on a new toy idea," said Carolyn Shapiro, senior editor at Toy and Hobby World International. "If the companies are buying ideas, it means they think the consumers will be spending, so this has to be seen as a vote of confidence in the future."