UPDATE 2-LeapFrog cuts 2010 outlook, shares dive

Wed Jan 12, 2011 11:22am EST

* Sees 2010 EPS $0.03-$0.06 vs est. $0.28

* Prior 2010 view $0.20-$0.30

* Sees sales growth of 13-14 pct in 2010

* Shrs fall as much as 27 percent (Recasts; adds background; updates shares, analyst comment)

By N.R. Sethuraman and Abhishek Takle

BANGALORE, Jan 12 (Reuters) - Educational toy maker LeapFrog Enterprises Inc (LF.N) slashed its full-year earnings forecast as demand for its toys petered out after a strong start to the holiday season.

The company now sees full-year earnings sharply below estimates, sending its shares down as much as 27 percent Wednesday morning and making it the top loser on the New York Stock Exchange.

The company had ramped up its advertising spending for the holiday season and analysts were expecting its Leapster Explorer -- a handheld gaming device that could double as an e-reader -- to be among the top toy picks in 2010.

In November, the company, which sells interactive learning toys and books covering subjects from math to music, said it was seeing strong demand for the Explorer and had forecast supply to be tight during the holidays. [ID:nSGE6A00GT]

LeapFrog also forecast sales to rise 13-14 percent for the full year which translates to $433 million at the top end, short of estimates of $452.3 million. The company had earlier expected sales to grow 15-20 percent.

"They had pretty good demand most of the holidays but... it might have been that people were just done spending after the holiday season and weren't buying any more products or bought the products a little bit earlier," Wedbush Securities analyst Edward Woo told Reuters.

The blizzard that hit the East Coast after Christmas also contributed to the slackening of demand, the analyst said.

The company forecast full-year earnings of 3-6 cents a share, far below analysts' expectations of 28 cents a share, according to Thomson Reuters I/B/E/S.

However, Woo said the stock was oversold given that the company is posting its first full-year profit in five years: "Granted they had a bad miss...but is it worth the stock being down 25 percent? I don't necessarily think so."

Shares of the company were down 25 percent at $4.06, on more than eight times their 10-day average volume, Wednesday morning on the New York Stock Exchange. (Reporting by NR Sethuraman and Abhishek Takle in Bangalore; Editing by Don Sebastian)

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