By Aarthi Sivaraman
NEW YORK (Reuters) - Monopoly game maker Hasbro Inc
The two U.S. companies are due to report quarterly results on Monday, with Hasbro expected to show a higher profit, while Mattel's bottom line will likely be weighed down by issues such as its legal dispute over the Bratz doll collection.
"My gut tells me that Hasbro is going to do better relative to expectations than Mattel," Wedbush Morgan Securities analyst Chris White said. "Their business has been stronger over recent quarters. You just continue the trend forward."
On average, analysts expect Mattel to post a profit before items of 71 cents per share in the third quarter, up from 68 cents per share a year ago, according to Reuters Estimates.
For Hasbro, the analysts expect a profit of 86 cents per share, up from 78 cents per share.
But Mattel has more issues to contend with than its rival.
The owner of Elmo and Dora the Explorer derives 40 to 45 percent of its revenue from overseas markets, which means the U.S. dollar's relatively recent strengthening could hurt its results.
White also expected that Mattel's revenue growth rate could shrink to 7 percent for the third quarter, down from 11 percent in the second quarter.
Hasbro's international sales are around 35 percent of its annual sales.
Hasbro also benefits in the current economy as consumers shun vacations and stay home to play board games like Monopoly, said Sterne Agee analyst Margaret Whitfield.
This holiday season Hasbro's toy pup, Furreal Friends Biscuit retailing for nearly $180 and Mattel's Elmo Live retailing for $60 are expected to fly off shelves, toy industry experts predicted.
Next year, analysts expect a boost to Hasbro's sales from products tied to the "Transformers - Revenge Of The Fallen" and "G.I. Joe - The Rise of the Cobra" movies.
Investor optimism for Hasbro over Mattel has been clear. Hasbro's shares, currently at $30.64, are up about 16 percent since January. In comparison, Mattel's shares are about 24 percent lower at $14.45.
THE COST OF BRATZ
Mattel has also been plagued by costs tied to a global recall of its toys last year, stricter product testing and a recent lawsuit against MGA Entertainment over the Bratz dolls.
"Mattel has legal expenses, which is significant, from MGA and the recalls," said Whitfield. "With the MGA lawsuit, we think the legal expense was as significant in Q3 as in Q2."
Both companies face higher costs for commodities like oil, and labor in China. But Hasbro also uses other materials like paper for its board games, which analysts say leave it less vulnerable to oil-related pressures.
To make up for higher costs, Mattel raised prices across most products in June. Hasbro did the same from September 1.
Further price increases, if any, may not be well received by consumers, analysts said.
Retail analyst firm Deloitte in a September report projected one of the weakest holiday sales seasons in 17 years.
"Christmas will come, but some of the big ticket items may not be in great demand," Whitfield said.
Toy makers had expected to be spared as parents are more likely to sacrifice gifts for themselves in favor of their kids.
"It is clear that the environment we are in is worse than pretty much anyone alive has ever witnessed," Wedbush's White said. "It could be different this time."
(Editing by Leslie Gevirtz)
