OVERVIEW: Following the weakest holiday season in decades, analysts will be watching the toy makers' results from the first quarter — their least important season of the year — to see how they are handling the tough sales environment, cautious ordering by retailers and commodity costs that are higher than a year ago.
The stronger dollar is expected to hurt both companies' results, since both have a large portion of their sales in other countries — more than 40 percent for Hasbro and about 50 percent for Mattel.
Hasbro — which makes board games such as Clue and Scrabble — has products tied to three films coming out this spring and summer: "X-Men Origins: Wolverine," "Transformers: Revenge of the Fallen" and "G.I. Joe," though few items have been shipped yet. A boost from those sales should show up later in the year.
Meanwhile, Mattel heavily promoted the 50th anniversary of its Barbie brand during the quarter, including a fashion show at Fashion Week in New York, limited-edition dolls and opening a flagship House of Barbie store in Shanghai.
BY THE NUMBERS: For Hasbro, analysts polled by Thomson Reuters, on average, predict a profit of 14 cents per share on revenue of $647 million. For Mattel, analysts expect a loss of 13 cents per share on revenue of $795.8 million.
ANALYST TAKE: "A key focus for both companies' earnings releases will be inventory levels, for both the companies and retailers," said Barclays Capital analyst Felicia R. Hendrix. "We will be interested to see if either of the companies was able to work through existing inventory during the quarter, how they are addressing the rest of the year and if retail demand for toys has improved."
Wedbush Morgan Securities analyst Chris White said he expects Mattel to post a loss of 20 cents per share due to the stronger dollar.
"We believe the Street is underestimating the extent that negative (foreign exchange) translation will have on the company's revenue performance, and we do not believe that the easing of commodity cost pressures is flowing through the income statement as much as some expect," he wrote.
WHAT'S AHEAD: Analysts are looking for an update on sales trends and commodity costs when the companies report. Looking forward to 2010, Mattel's growth could be driven by new properties such as WWE and Thomas and Friends. Hasbro could benefit from sales tied to its three movie tie-ins, and in 2011 will benefit from product deals related to "Spider-Man 4" and "Transformers 3."
STOCK PERFORMANCE: Hasbro shares fell 4 percent and Mattel shares rose 24 percent during the quarter.
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