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By Savyata Mishra
(Reuters) -Mattel(MAT.O) shares climbed as much as 18% in early trading on Wednesday after the Hot Wheels maker provided an upbeat annual profit forecast and hinted at stabilizing toy demand, despite tariff-related uncertainty.
The company also said it planned to increase product prices to soften the blow from the potential impact of recent tariffs imposed by U.S. President Donald Trump on imports from China, Canada and Mexico. While levies on Canada and Mexico have been paused for a month, those on imports from China have kicked in.
"Along with strong set of results for Q4, the biggest surprise from Mattel was guidance to earnings growth despite U.S. tariffs," UBS analyst Arpine Kocharyan said in a client note.
Toymakers have taken proactive measures to reduce their China exposure by shifting production out of the region, reviewing their product lines and getting in inventory early.
By 2027, no country is expected to represent more than 25% of global production, Mattel executives told investors on a post-earnings call, adding that it could be achieved by shutting down one plant in China.
China currently makes up about 40% of global toy production for Mattel and 20% specific to the U.S. business, which contributed to roughly half of global toy sales, analysts have estimated.
"This could arguably be a point of conservatism given the uncertainty around actual implementation (of tariffs), but we are also skeptical of the ability to pass through price increases in a category ... where demand remains weak," Morgan Stanley analyst Megan Clapp said.
Mattel's sales declined 1% in 2024, but gross margins expanded 330 basis points, thanks to better-managed inventory, a nimble supply chain and cost savings.
The company's fourth-quarter results exceeded expectations, benefiting from demand for its Hot Wheels vehicles and action figures, even as Barbie toy sales remained pressured.
At $21.35, Mattel's shares were set for their best day since February 2019.
At least three brokerages raised their price targets on the company. Jefferies upgraded the stock to "buy" from "hold", citing the pipeline of movie releases in the current year.
Rival Hasbro(HAS.O) is scheduled to report quarterly earnings on Feb. 20. Its shares were marginally higher premarket.
Mattel's forward price-to-earnings ratio for the next 12 months, a common benchmark for valuing stocks, was 11.07, compared with 12.90 for Hasbro.
(Reporting by Savyata Mishra in Bengaluru; Editing by Sriraj Kalluvila)
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