Heading into its Q3 results announcement last week, there wasn't much that could go worse for troubled toymaker Mattel (NASDAQ: MAT). The company was coming off two consecutive loss-making quarters, sales were eroding, and a top customer, Toys R Us, recently declared bankruptcy.
Continue Reading Below
Well, guess what? That's right, there was even worse news around the corner. Along with the results release, Mattel also announced that it is suspending its dividend. This move has given investors even more reason to bail out of the stock.
A time to save
The elimination of the dividend wasn't entirely unexpected. Although Mattel had reliably dispensed a payout, alternating between yearly and quarterly, since 1991, its recent struggles caused it to eviscerate it earlier this year. In June, it more than halved the per-share distribution to $0.15 from the previous $0.38.
In the earnings release, Mattel said it's eliminating the dividend to "increase financial flexibility, strengthen the balance sheet, and facilitate strategic investments." Last quarter, that $0.15-per-share distribution cost it a bit over $51.5 million.
The annual savings of $200 million-plus will certainly come in handy, particularly for a company that has pledged to slim overall costs by $650 million every year. The latter figure, by the way, is over three times the amount in savings it announced this summer.
Continue Reading Below
Mattel just can't catch a break. Sales in all four of its product categories -- girls' and boys' brands, Fisher-Price, American Girl, and construction and arts-and-crafts brands -- all fell precipitously in Q3, at levels ranging from 9% to a dizzying 30% on a year-over-year basis. None of its toys, it seems, are hitting at the moment. That includes the ageless Barbie line, which saw a dip of 6% in the quarter.
Those results were far worse than many imagined, as was the company's bottom-line loss. Overall revenue declined by 13% to $1.56 billion, while per-share net profit was $0.09, a far cry from the $0.70 of the same quarter a year ago. Both line items missed analyst estimates; on average, prognosticators were expecting a top line of $1.82 billion, and EPS of $0.59.
What's going wrong? In many ways, the company still hasn't recovered from Walt Disney's (NYSE: DIS) decision to abandon Mattel as the manufacturer of its durably popular Princess toy and accessories line, in favor of Hasbro (NASDAQ: HAS). That deal also covered merchandise derived from Disney's smash hit 2013 animated film Frozen.
The Mattel-to-Hasbro switch kicked in at the beginning of 2016; that year, Mattel's sales fell by 4%, and its net income fell by 13%. By contrast, aided by those adorable Disney goods, Hasbro's revenue rose by 13% while the bottom line expanded a very healthy 22%. Since the start of 2016, the trajectories of the two stocks have diverged sharply, as is starkly obvious in this graph.
No more toying around
The death of a dividend is an income investor's worst nightmare. Mattel's latest move will certainly drive away more shareholders. As it is, the stock closed nearly 9% down on the heels of those unhappy Q3 results and the dividend news.
The positive is that the company will have significantly more money to help it right the ship. Perhaps that'll kick-start a new toy line or two, because the ones Mattel's got clearly aren't going anywhere.
Find out why Walt Disney is one of the 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. (In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the market!*)
Tom and David just revealed their ten top stock picks for investors to buy right now. Walt Disney is on the list -- but there are nine others you may be overlooking.
*Stock Advisor returns as of October 9, 2017