Mattel warns that profit won't be close to forecasts; Shares dive $5 to $11.875 for the maker of Barbie; Toy industry


EL SEGUNDO, Calif. -- Mattel Inc., the world's largest toy maker, warned yesterday that third-quarter profit will miss forecasts by as much as 55 percent because of slow software sales, sending its shares down 30 percent.

The company had been expected to earn 67 cents a share, the average estimate of nine analysts polled by First Call Corp., but now expects to come in under the 39 cents that it posted for the third quarter a year earlier.

Mattel blamed returned software, higher promotional spending and a canceled licensing pact at the Learning Co. unit acquired in May.

Shares of the maker of Barbie dolls and Hot Wheels cars fell $5 to $11.875. The stock has lost three-fourths of its value from its peak in March 1998 amid profit shortfalls, sluggish sales and the loss of top executives -- putting Chairman and Chief Executive Officer Jill Barad's job in jeopardy, an investor said. "The board has to consider bringing in a new team that can deliver," said Erik Gustafson, a senior portfolio manager at Stein Roe & Farnham Inc., which owned 3.77 million shares as of June. "This was a very, very important quarter for Mattel."

"Mattel has lacked its hit product power, and has been facing internal management turmoil for quite some time," Salomon Smith Barney analyst Jill Krutick wrote in a report. She rates Mattel "neutral."

Mattel bought Learning Co. in May for $3.6 billion. It's one of the biggest makers of educational and entertainment programs including "Sesame Street" and "Where in the World is Carmen Sandiego?"

The purchase was part of Barad's push to expand into electronic and computer-based toys, a market that is growing faster than that for Mattel's traditional toys.

Learning Co. will have a loss of $50 million to $100 million, Mattel said. It also pointed to increased advertising and promotions and the write-off of bad debt at the software unit for the shortfall. It declined to elaborate. Learning Co. accounts for 16 percent of Mattel's sales, Krutick said.

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