‘Toy Story 3′ helps Mattel 2Q net income double, but rising costs, holiday caution sock stock

‘Toy Story 3′ a smash for Mattel as well as Pixar

NEW YORK — Parents snapped up toys tied to the box-office smash “Toy Story 3″ in spring and early summer, helping Mattel’s second-quarter net income more than double. But the toymaker sounded a cautious note for the holiday season and shares fell.

The maker of Barbie and Hot Wheels said Friday its net income rose to $51.6 million, or 14 cents per share, from $21.5 million, or 6 cents per share last year. That just missed analyst expectations for net income of 15 cents per share, according to a poll by Thomson Reuters.

It was the first time Mattel hasn’t beat or matched expectations in five quarters. Also, the company reiterated that it expects rising costs in the second half of the year. Shares fell 7 percent in midday trading.

Revenue remained strong, up 13 percent to $1.02 billion, matching analyst expectations. A year ago revenue was $898.2 million.

CEO Robert A. Eckert said sales of Barbie and Hot Wheels were strong and said toys tied into Pixar’s “Toy Story 3″ made a “stellar contribution” to the quarter.

“With the all important second-half of the year ahead of us, I am encouraged by the strong momentum of our product line,” he said.

Still, he said he expects retailers will remain cautious when ordering toys for the holidays.

“Retailers continue to be tight on inventory, that’s not surprising to us,” Eckert said. “Similar to last year, people are going to be cautious and they tend to buy what they’re selling as opposed to buying a lot in advance of selling.”

Mattel, based in El Segundo, Calif., has experienced a resurgence in strength in its classic brands such as Barbie and Hot Wheels. Barbie revenue rose 6 percent and Hot Wheels 11 percent. Its new licenses to make toys tied to preschool stalwart “Thomas and Friends” and World Wrestling Entertainment have been strong as well. Mattel also just introduced a new product line, “Monster High” which features toys tied to a group of teens who are descended from famous monsters that go to high school together.

Other toys it is hoping will be hits for the holidays include a $49.99 Barbie doll that has a video camera inside and lets kids record video and watch it on an LCD screen on the doll’s back; Dance Star Mickey, a $69.99 doll that dances and sings; and Matchbox’s $59.99 Stinky the Garbage Truck, a toy truck that moves and talks.

As the company heads into the second half of the year, including the crucial holiday season that accounts for up to half of toymakers’ annual revenue, it is facing rising costs for commodities like oil and resin, the primary material used in plastic, and is dealing with rising wages in China.

Mattel said price increases in 2011 will be “more likely than not,” given what is going on with the supply chain.

The company, which is in the middle of a cost-cutting plan, said it expects to be on the high end of its guidance of saving $180 million to $200 million in 2010.

Standard & Poor’s analyst Erik Kolb said in a note to investors that operating costs were higher than he expected and he has concerns about rising production costs in the second half of the year.

He lowered his opinion on Mattel to “Hold” from “Buy.”

But some analysts suggested the decline might be a good opportunity.

Stern Agee & Leach analyst Margaret Whitfield said the delay of “Toy Story 3″ in Europe — pushed back because of the World Cup — may have hindered some revenue that investors were expecting in the second quarter, but that will help third quarter revenue, she said.

Chief rival Hasbro reports second-quarter results on Monday.

Shares fell $1.61, or 7 percent, to $21.39 in midday trading. The stock has traded between $15.85 and $24.60 over the past year. The decline came as the broader market also fell as well because of disappointing earnings reports from two major banks, Citigroup Inc. and Bank of America Corp. The Dow Jones industrial average fell more than 150 points.