Mattel’s Profit Dives; Higher Tax Rate Cited

Mattel reported Friday that third-quarter revenue rose 5% but net income fell nearly 50% because of a sharply higher tax rate.

Net income for the year should be “significantly lower” than in 1985 despite continued strong international business, Arthur S. Spear, chairman of the Hawthorne toy company, and Thomas J. Kalinske, president, said in a joint statement. They attributed the decline to the higher-than-normal tax rate, “generally weak domestic toy industry conditions” and lower demand in the United States for the company’s Masters of the Universe products.

Mattel’s revenue for the three months rose to $344.4 million from $328.1 million in the year-ago period.

But net income plunged to $16.3 million from $31.3 million a year ago, which was inflated by $5.6 million in tax loss carryforwards. The income decline was less severe before income taxes: $44.5 million in the quarter, compared to $48.6 million in the same quarter last year. Net income per share fell to 34 cents from 60 cents in the year-ago quarter, adjusted for payment of preferred stock dividends.

Mattel’s tax rate was 63% in the third quarter, compared to 47% during the same period last year. The 1986 rate is so high because losses sustained by domestic operations cannot be used to offset higher foreign earnings, a Mattel spokesman said.

Mattel introduced several new toys at a trade show in September and “trade reaction thus far has been positive,” Spear and Kalinske said. Among those new toys is Marshal Bravestarr, an 8-inch-tall high-tech cowboy who shoots with a laser-like gun.

Analyst Gregory Kieselmann said the future is looking “better” for Mattel despite the earnings decline. “I think we’ve seen the worst in terms of the Masters of the Universe debacle,” in which sales began to slip late last year as children lost interest in the toy, he said.

For the nine months, sales slumped to $786.8 million from $806.7 million in the same period last year. Net income was $18.6 million, reflecting a 62% tax rate, compared to $73.4 million, which included $19 million in tax loss carryforwards and reflected a 47% tax rate. Net income per common share was 31 cents, compared to $1.37 last year, adjusted for payment of preferred stock dividends.

Separately, Mattel’s board authorized a shareholder rights plan that gives shareholders the right to buy stock at half price if a takeover is attempted. Mattel said it knows of no plans to acquire control of the company.