UPDATE 3-Jakks sees weak '09 as key brands decline, costs rise

* Q4 misses Wall Street by wide margin

* Sees 2009 below consensus view

* Sales at Hannah Montana, Care Bears lines fall

* President Stephen Berman named co-CEO

* Shares fall 14 pct to 4-year low (Adds details, analyst comment, updates share movement)

By Anne Pallivathuckal

BANGALORE, Feb 18 (Reuters) - Jakks Pacific Inc JAKK.O, maker of Cabbage Patch Kids and Care Bears toys, forecast a weak 2009 as gross margins fall and sales of new toys fail to offset declines in older toys like the Hannah Montana line.

The toymaker’s shares fell as much as 14 percent to $14.44, their lowest in more than four years.

Higher amortization costs related to recent acquisitions and product-testing charges are expected to hurt earnings during the year.

Along with rivals Mattel Inc MAT.N and Hasbro Inc HAS.N, Jakks, which reported worse-than-expected quarterly results, has encountered higher costs for product testing following an avalanche of toy recalls.

For the fourth quarter, the company posted net income of $16.9 million, compared with $33.4 million, a year earlier. Net sales fell 6 percent to $269.3 million.

Analysts on average had expected earnings of $1.02 a share, before special items, on revenue of $278.9 million, according to Reuters Estimates.

For 2009, the company said its forecast includes the impact of recent acquisitions, but only “minimal synergies.”

Last year, Jakks purchased the children’s product businesses of privately held Tollytots Ltd and Kids Only Inc, and bought Halloween costume and decor company Disguise Inc, a unit of Cesar S.A.

“We’re taking a very conservative approach to all areas of the business for 2009, including margins, including revenue and including a conservative approach to savings,” a Jakks executive said on a conference call with analysts.

The newly acquired businesses are expected to add to results later in 2009, the company said.


The company, whose new products include a hand-held EyeClops video projector and MXS and NASCAR vehicles, sees 2009 earnings of $2.25 a share on revenue of $920 million, well below analysts’ expectations of earnings of $2.78 a share on revenue of $945.5 million.

“While we found many of Jakks’ new toys to be innovative and promising, we also believe that the new lines will not be sufficient to offset the declines in older toys, notably Hannah Montana, which, we believe, has plunged in popularity,” Needham & Co analyst Sean McGowan said in a Feb. 17 note.

Chief Executive Jack Friedman said Jakks will continue to evaluate potential acquisition opportunities and that current president Stephen Berman had been named co-CEO to help with the company’s growth and acquisition strategy.

Shares of the company were trading down 95 cents at $15.82 Wednesday afternoon on Nasdaq. (Editing by Anthony Kurian)