Moody’s Cuts Mattel’s Outlook

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Moody’s Investors Service lowered its outlook Monday on Mattel Inc.’s debt to negative from stable, saying the El Segundo-based toymaker’s weaker-than-expected third-quarter results could carry well into the fourth quarter.


Moody’s said it was concerned that Mattel’s declines in Barbie sales and higher raw material prices could lead to erosion of its cash flows and debt-protection measures. Barbie is Mattel’s largest and most profitable product line.


Mattel reported on Oct. 17 that its third-quarter sales of Barbie were down 18 percent, as it faced heavy competition from MGA Entertainment Inc.’s Bratz dolls. The decline was greatest in the U.S., but was offset by higher sales in other Mattel brands. The company’s third-quarter profit slumped 12 percent.


Still, Moody’s affirmed Mattel’s long-term and short-term debt ratings. Moody’s praised Mattel’s strong product line and its “sufficient quality” revolving credit facility, but noted the company’s exposure to longer-term challenges related to the toy industry, such as shortening product cycles and a shift away from traditional toys. The company’s long-term debt is rated “Baa2,” the second-lowest investment-grade rank.


The ratings services firm also said that Mattel’s ratings could be downgraded if the upcoming holiday season turns out to be weaker than expected.


Last Tuesday, Standard & Poor’s cut Mattel’s short-term credit rating to one level short of junk status. S & P; lowered Mattel’s short-term rating to “A-3” from “A-2,” citing “concerns about the company’s business fundamentals that outweigh its good liquidity and cash-generation characteristics.” S & P; also downgraded its long-term outlook on Mattel to negative from stable based on falling profitability and increased business risk from the continuing decline in sales for Barbie.

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