Earnings: Wachovia, Mattel

Earnings: Wachovia | Mattel

Wachovia 3Q Profit Rises

CHARLOTTE, N.C. - Wachovia Corp. (WB), the nation's fourth-largest bank, on Monday reported a nearly 13 percent rise in third-quarter earnings from a year ago as interest and fee income grew despite a challenging interest rate environment.

Net income rose to $1.88 billion, or $1.17 per share, in the July-September period from $1.67 billion, or $1.06 per share, a year ago. Results dipped slightly from second-quarter profit of $1.89 billion, or $1.17 per share.

The results included expenses related to Wachovia's purchase of California auto lender Westcorp earlier this year for $3.9 billion. And on Oct. 1, it closed its $24.2 billion deal to buy Golden West Financial Corp., a mom-and-pop shop that blossomed into a prized savings and loan.

Excluding merger-related expenses, earnings totaled $1.90 billion, or $1.19 per share, up from $1.72 billion, or $1.09 per share, in the third quarter of 2005.

Total revenue climbed to $7.04 billion from $6.7 billion a year ago, but declined from $7.26 billion in the second quarter.

Profits were in line with projections from analysts surveyed by Thomson Financial, but revenue was below the anticipated $7.28 billion.

Wachovia shares slipped 7 cents to $56.40 in premarket trading.

Wachovia's results — the first in a week heavy with earnings reports from financial institutions — underscored how the yield curve has continued to challenge the nation's banks and thrifts. A flat yield curve — the result of rising short-term rates and comparatively low long-term rates — squeezes banks' net interest margin, which is the difference between what banks pay to borrow money and what they can earn when they lend it.

Ken Thompson, Wachovia's chairman and chief executive, said in a statement accompany the report that "in the face of a challenging yield curve environment, we continued to improve efficiency, while asset quality remained strong."

He added: "Our industry-leading customer service helped sales productivity remain stable, and our expanded consumer franchise including auto lending, credit cards and Westcorp retail branches in California generated results ahead of our expectations."

Net interest income, or fees from interest accounts like loans and deposits, grew to $3.58 billion from $3.44 billion last year. Fee income was $3.47 billion, up from $3.26 billion a year earlier.

For the first nine months of the year, net income was $5.49 billion, or $3.43 a share, up from $4.94 billion, or $3.10 a share in 2005.

Mattel 3Q Net Income Jumps

LOS ANGELES - Mattel Inc. (MAT), the largest toy maker in the world, said Monday third-quarter earnings rose 6 percent to top Wall Street's expectations, lifted by strong sales of Fisher-Price products such as TMX Elmo, "Cars" branded items and girls' brands such as Polly Pocket and Pixel Chix.

The El Segundo-based company also said robust third-quarter sales may portend a good holiday season. Mattel's shares rose 5 percent in early trading.

Mattel net income grew to $239 million, or 62 cents per share, from $225.3 million, or 55 cents per share, a year ago.

During the third quarter, Mattel launched an internal review of historical stock-option practices for grants made between the fourth quarter of 1993 through the third quarter of 2006. The review found no backdating, misconduct or manipulation associated with stock option grant dates, but did identify some "administrative procedural deficiencies" which resulted in unintentional accounting errors before 2003. The correction of these accounting deficiencies reduced third-quarter net income by 3 cents per share.

Sales gained 7 percent to $1.79 billion from $1.67 billion last year, including a favorable change in currency exchange rates of 1 percentage point.

On average, analysts surveyed by Thomson Financial were looking for profit of 61 cents per share on sales of $1.63 billion.

Third-quarter gross sales increased 5 percent in the U.S. and 12 percent in international markets.

"I am pleased with our third quarter results. We had good performance across our portfolio, with especially strong contributions from Fisher-Price, the CARS entertainment property, and girls brands such as Polly Pocket! and Pixel Chix," said Robert A. Eckert, chairman and CEO, in a prepared statement. "The Barbie business continued to show encouraging signs of stabilization, with U.S. sales increasing for the third consecutive quarter, and we generated early retail excitement with the introduction of TMX Elmo in September."

The company said worldwide gross sales for the Mattel Girls and Boys Brands business unit grew 8 percent to $1.08 billion, and sales for the Barbie brand were up 1 percent. Global gross sales for the Wheels category, which includes Hot Wheels, Matchbox and Tyco R/C brands, fell 3 percent.

Sales for its Fisher-Price Brands business unit totaled $790.5 million, up 9 percent year-over-year, on strong growth in core Fisher-Price and Fisher-Price Friends worldwide, including continued growth from Dora the Explorer and the launch of TMX Elmo.

In comments during a conference call with Wall Street analysts, Eckert said the company's progress in the third quarter bodes well for the key holiday season.

"True, the holiday season has just begun, but so far it's a good beginning," Eckert said. "Our customers are experiencing good signs for the holidays as well with some retailers commenting that many of the higher-priced toy items like Power Wheels are moving nicely and early."

Perhaps Mattel's best prospect this season is the animated, red-fur covered TMX Elmo. The toy went on sale in mid-September and has already become the biggest-selling item in the Fisher-Price unit, selling out at many retail outlets.

"Nobody anticipated the first day response we had on this toy," Eckert said. "Certainly since I've been here, there's never been a one-day sell-through of a toy like this, let alone this happening in September, not the day after Thanksgiving."

The demand for the new Elmo has also boosted sales of other versions of the doll. Now the company has increased production as it scrambles to get more TMX Elmos into stores in time for the holidays.

Asked if the company underestimated demand of the toy, or deliberately held back shipments to drum up a frenzy, Eckert said the company is moving as fast as it can.

"The issue is not that somebody's got a pile of inventory and hasn't moved the pile of inventory," Eckert said. "The issue is demand is outstripping supply."

Mattel shares rose $1.11 , or 5.4 percent, to $21.80 during early morning trading on the New York Stock Exchange.