Mattel second-quarter profit tops view; shares up

NEW YORK Fri Jul 18, 2008 11:01am EDT

The logo of Mattel is seen outside the company's corporate headquarters in El Segundo, California July 17, 2008. REUTERS/Mario Anzuoni

The logo of Mattel is seen outside the company's corporate headquarters in El Segundo, California July 17, 2008.

Credit: Reuters/Mario Anzuoni

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NEW YORK (Reuters) - Mattel Inc MAT.N, fresh off a big court victory over Bratz dolls, posted a better-than-expected quarterly profit on Friday on higher sales of products tied to movies like "Speed Racer" and "Kung Fu Panda," and its shares rose 12 percent.

Mattel, whose brands include Barbie dolls and Hot Wheels, won a convincing win Thursday in a copyright infringement suit against Bratz doll maker MGA Entertainment Inc over ownership of the original drawings for the $1 billion-plus Bratz franchise.

Mattel, the world's top toymaker, said second-quarter net income fell 48 percent to $11.8 million, or 3 cents a share, from $22.8 million, or 6 cents a share, a year earlier.

Still, the profit topped analysts' average target of 2 cents a share, according to Reuters Estimates.

"For the long term, the victory in the court regarding Bratz will have a far more lasting impact than worrying about what might or might not have transpired in the second quarter, which is clearly not a very important quarter," said David Liebowitz, managing director at Burnham Securities.

Sales rose 11 percent to $1.11 billion. Sales increased 3 percent in the United States and 15 percent internationally.

Worldwide Barbie sales fell 6 percent. In the U.S., Barbie sales slid 21 percent, Chief Financial Officer Kevin Farr said on a conference call.

While international sales results were helped by a weak dollar, sales of its Fisher-Price brand rose 4 percent after a drop in the previous quarter.

Mattel raised prices by mid- to high-single-digit rates across most products beginning in June.

The company still expects to face rising input costs, much like rival Hasbro Inc HAS.N, which has also cited higher expenses, specifically for transportation, as oil prices hit record levels.

But price increases, possibly lower legal costs and lower recall-related expenses could help the second half of 2008, CFO Farr said.

The second half of any year, which includes the key holiday season, typically accounts for a big portion of annual sales for toymakers. But doubts have risen about consumer spending heading into the holidays as U.S. shoppers face record-high fuel costs, increases in food prices, and a housing market downturn.

Mattel Chief Executive Bob Eckert sought to ease such concerns. "There's no reason to believe, based on what we have seen so far this year or last Christmas, that the toy business won't continue to perform well," he said on the call.

BRATZ RULING

A federal jury found that Carter Bryant, who created the multiethnic, hip-hop-inspired Bratz dolls, conjured up the characters and the name while he was still under contract as a designer for Barbie at Mattel.

Privately held MGA lost all but four drawings that Bryant testified he made in a notebook while on an eight-month hiatus from Mattel in 1998.

The jury's decision in the closely watched case could have a significant effect on both companies if Mattel wins the large damages it is seeking and an injunction to curb MGA from selling Bratz -- one of Barbie's fiercest rivals.

Damages will be decided in a separate second phase of the trial.

Mattel cited the legal costs tied to the trial as a reason for higher expenses in its first quarter, when it posted an unexpected quarterly loss.

In the second quarter, Mattel reported a 16 percent increase in selling and administrative expenses.

"These are likely due to elevated legal expenses associated with last year's recalls and the MGA trial and should decline in the second half," Wedbush Morgan Securities analyst Chris White wrote in a note to clients.

Mattel shares were up $2.21 to $20.49, after rising as high as $21.18 earlier on the New York Stock Exchange.

(Reporting by Aarthi Sivaraman; Editing by John Wallace/Jeffrey Benkoe)

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