Mattel (MAT) Has Strong Drivers for Future Growth: Longleaf

Longleaf Partners Fund, a suite of mutual funds and UCITS funds managed by Southeastern Asset Management, discussed Mattel (NASDAQ: MAT) and other companies in its Q4 investor letter – we’ve already covered the fund’s comments on Park Hotels & Resorts and General Electric. In this article, we’re presenting Longleaf’s thoughts on Mattel, a $5.03-billion children’s entertainment firm that designs and produces toys and consumer products.

Here are the Longleaf’s comments:

Mattel (-35%, -2.32%, -36%, -2.42%), the classic toy company, fell in the fourth quarter, making it a detractor for the year after the company lowered full-year revenue guidance by 3%. The primary challenge was sorting through the retail disruption caused by the Toys “R” Us bankruptcy, combined with self-inflicted Chinese inventory problems.

The weaker revenue number ignores CEO Ynon Kreiz’s solid progress towards cutting $650m in operating costs. For the first nine months of 2018, the company’s two most important brands, Barbie and Hot Wheels, grew gross sales 15% and 6%, respectively. Fisher-Price, Thomas and American Girl all declined, but each brand has strong, unique drivers for future growth.

To invest in high-return growth projects, Kreiz is creating new businesses using Mattel’s deep well of brands and intellectual property. The stock ended the year trading at less than half the 2017 rumored acquisition offer and has already rebounded strongly in the first two weeks of 2019.

Mattel (NASDAQ: MAT) is a toys producer company. Its portfolio includes Barbie, Hot Wheels, American Girl, Fisher-Price, Thomas & Friends and MEGA, among others. The company’s offerings include film and television content, gaming, music, and live events. It operates in 40 locations and sells products in more than 150 countries.

Shares of the toy maker are up 49.18% since the start of the year. The stock soared more than 20% in February, thanks to the company’s better-than-expected fourth-quarter 2018 results. Mattel reported a 5% year-over-year decline in its sales to $1.5 billion and had a profit of $14.9 million or $0.04 per share.

However, over the past 12 months, the stock has dropped nearly 9%. Analysts polled by FactSet have a consensus average rating of ‘Hold’ on MAT with a consensus average price target of $14.69. On the last trading day, the stock closed at $14.55.

Mattel (NASDAQ: MAT) isn’t a very popular stock among hedge funds covered by Insider Monkey. According to our database, 16 funds held positions in the toys maker at the end of the third quarter of 2018.

Disclosure: none