(Reuters) - Mattel Inc (MAT.O) reported a higher-than-expected quarterly profit on Tuesday as the world’s largest toy company benefited from raising prices and keeping a tight rein on costs.
The news, which comes as Mattel heads into the all-important holiday selling season, boosted its shares to their highest level since 1998. Smaller rival Hasbro Inc (HAS.O) is due to report its quarterly results next week.
Mattel, the maker of Barbie dolls and Hot Wheels cars, had increased prices at a mid-single-digit percentage rate on January 1 to offset higher costs for materials, labor and transportation.
Strong sales of its Fisher-Price, Monster High and American Girl products also helped Mattel in the third quarter.
Chief Executive Officer Bryan Stockton said the company was well-positioned for the biggest selling season of the year.
“We feel good that inventory levels, both at Mattel and at our retail partners, position us well for success in the holiday season,” said Stockton, who replaced long-time CEO Robert Eckert at the end of last year.
Mattel shares were up 4.3 percent at $36.95 on Nasdaq after touching a high of $37.20 earlier in the session.
Wells Fargo analyst Tim Conder said Mattel’s gross margin of 53.7 percent was above his estimate of 50.2 percent and the larger Wall Street projection of 50.7 percent.
Besides the price increases, margins benefited from manufacturing efficiency programs and a shift toward the company’s intellectual properties, particularly in dolls.
Toy companies like Mattel are increasingly trying to own more intellectual property so they can generate revenue by merchandising and licensing it.
Currency fluctuations accounted for a third of the improvement in gross margin, Chief Financial Officer Kevin Farr said. A stronger dollar had dented Mattel’s margins significantly in the year-earlier period.
Net income rose to $365.9 million, or $1.04 per share, from $300.8 million, or 86 cents per share, a year earlier. Analysts on average had expected 99 cents per share, according to Thomson Reuters I/B/E/S.
Sales rose 4 percent to about $2.08 billion, while analysts expected $2.07 billion. The cost of sales, which includes input and direct labor costs, fell 8 percent to $962.4 million.
Sales rose 6 percent for the Fisher-Price brand and 16 percent for American Girl, but fell 4 percent for Barbie.
Stifel Nicolaus analyst Drew Crum said the Barbie sales numbers were disappointing, but otherwise called the earnings report “a positive update entering the seasonally important holiday period.”
Reporting By Dhanya Skariachan in New York and Siddharth Cavale in Bangalore; Editing by Sreejiraj Eluvangal and Lisa Von Ahn