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Fitch Affirms Mattel's IDR at 'BBB'; Outlook Positive
NEW YORK-(Business Wire)-July 3, 2008 - Fitch Ratings has affirmed the Issuer Default Rating (IDR) and outstanding debt ratings of Mattel, Inc. (Mattel) as follows:
—IDR 'BBB';
—$1.3 billion bank credit facility 'BBB';
—$910 million senior unsecured notes 'BBB';
—Commercial paper program at 'F2'.
The Rating Outlook is Positive.
Mattel's ratings reflect the company's leading position in the industry with revenues of $6 billion, low leverage (Debt/EBITDA) of 1.1 times (x) and strong interest coverage of 12.7x at the fiscal year ended Dec. 31, 2007 (FY'07). Further after several years of decline, the EBITDA margin improved in 2007 to 17% (excluding recall expenses). Net debt at year end was just $49 million.
The ratings also incorporate the volatility inherent in the toy industry and the overhang from a number of product liability lawsuits related to the recalls of last fall. Mattel has significant liquidity and buttressed by insurance should be able to meet reasonable damage awards, if any. Industry factors include: fashion risk; energy related commodity cost increases; customer concentration in the U.S. to Wal-Mart, Toys 'R' Us and Target; age compression; declining to flat domestic industry revenues - down 2% to $22.1 billion in 2007 per NPD Group; and increased seasonality particularly regarding profitability. Given this, the larger players in the industry maintain clean balance sheets and a broad product portfolio.
The Positive Outlook incorporates Mattel's strong metrics and Fitch's expectations that free cash flow - absent recall related expenses - will continue to improve. Fitch also expects Mattel will remain committed to their financial framework of $800 million - $1 billion in cash and maintain a debt/capital ratio of approximately 25% at the end of each fiscal year.
Through the first quarter ended March 2008, worldwide net sales were down 2% to $919.3 despite a 5% positive impact from FX. The decline was primarily due to difficult comparisons with first quarter-2007 (1Q'07). From 1Q'04 through 1Q'06, revenues increased by less than 2% quarter over quarter. However strong sales of several key products coupled with a retailer base with too lean inventories necessitating restocking, led to 1Q'07 revenues increasing almost 19% to $940 million. While Mattel recorded a $47 million net loss, a portion was due to higher legal fees, higher levels of testing and commodity cost increases. Mattel has instituted price increases effective June 1st 2008 that should stabilize or improve margins.
Mattel holds particular strength in girls and infant and preschool toys through key brands such as Barbie, American Girl, Fisher-Price and Polly Pocket. Its boy brands include Matchbox, Hotwheels, and Tyco. In addition, Mattel holds important licenses with Warner Brothers, Disney Enterprises' Pixar unit, Nickolodeon and others.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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