Mattel sees $30 million charge from toy recall

NEW YORK (Reuters) - Mattel Inc MAT.N said on Thursday it expected to take a charge of $30 million for the recall of 1.5 million Chinese-made toys, including those with popular preschool characters from Sesame Street and Dora the Explorer.

Mattel said on Wednesday the toys manufactured by a contractor in China for the company's Fisher-Price unit were made with paint that may contain too much lead.

Lead has been linked to health problems in children, including brain damage.

"We require our manufacturing partners to use paint from approved and certified suppliers and have procedures in place to test and verify, but in this particular case our procedures were not followed," Jim Walter, Mattel's senior vice president of worldwide quality assurance, said in a statement.

"We are investigating the cause to ensure such events do not reoccur."

Of the 1 million products recalled from the U.S. market, Mattel said about 30 percent had reached store shelves.

Retailer Toys "R" Us said on Thursday it had already removed the toys from its shelves.

Mattel's shares were down 46 cents at $23.12 in afternoon trading on the New York Stock Exchange. The stock has traded within a 52-week range of $17.54 to $29.71.

Mattel said in a Thursday filing with the U.S Securities and Exchange Commission that it would adjust its second-quarter results to reflect the $30 million charge. Revenue for the period was $1.02 billion, with $410.4 million coming from Fisher-Price.

Mattel said it was reviewing procedures involving all of its Chinese-made products and that more issues could surface.

According to the Toy Industry Association, 80 percent of toys on U.S. store shelves are manufactured in China.

The recalled toys were manufactured between April 19 and July 6 and sold at stores across the United States between May and August 1, the company said.

Mattel said it was also expanding its testing programs to ensure that painted toys from third-party manufacturers are safe before they are sent to customers.

Don Mays, Consumer Reports' director for product safety and planning, called for third-party testing for toys similar to what independent tester Underwriters Laboratories does for small electronics.

"Fisher-Price entrusted the testing of these toys to the factory that manufactured them," Mays said.

Independent toy industry consultant Christopher Byrne said the impact to Mattel financially as well as in the court of public opinion should be negligible.

"Mattel's systems are so strong that they were able to contain two-thirds of the product from ever getting into the marketplace," Byrne said. "That's good news and should make people very confident about Mattel."

CONCERN ABOUT CHINESE GOODS

In June, RC2 Corp (RCRC.O) recalled wooden Thomas & Friends toy trains made in China and sold in the United States because some of them contained lead paint.

"You've now had two companies say they've had problems with lead, and Mattel is so scrupulous about this -- if it can happen to Mattel, it can happen to anybody," Wedbush Morgan Securities analyst Sean McGowan said.

There has been concern worldwide about the safety of goods imported from China. The United States stepped up its inspection of Chinese goods after a chemical additive in pet food caused the death of some animals.

But unless Mattel finds a larger problem with its testing methods, McGowan said he did not see any long-term impact on the company.

"Nobody has died and nobody has gotten injured," he said. "The reason we worry about lead and paint is because kids might chew it. Some of these products aren't even meant to be played with that way."

Mattel is asking U.S. stores and consumers to return 967,000 plastic toys and is recalling another 533,000 from other countries including Britain, Canada and Mexico.

The recall is Mattel's largest since one of about 10 million Power Wheels vehicles in 1998 after reports that the ride-on cars and trucks could overheat and cause fires while being ridden.

(Additional reporting by Brad Dorfman in Chicago)