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Mega Brands CEO Marc Bertrand at the company's headquarters in Montreal. August 19, 2008. (John Morstad For The Globe and Mail)
Mega Brands CEO Marc Bertrand at the company's headquarters in Montreal. August 19, 2008. (John Morstad For The Globe and Mail)

Mega Brands profit dips on higher costs Add to ...

Toy maker Mega Brands continued to improve its sales in the third quarter even though cautious retailers have reduced their purchases ahead of the key Christmas buying season.

“We have achieved eight consecutive quarters of year-over-year sales growth,” CEO Marc Bertrand said Wednesday during a conference call.

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“We look forward to a strong finish this year and starting 2012 with both our business segments well-positioned for growth in sales, profitability and cash flow.”

The Montreal-based company saw its sales increase four per cent $133.4-million(U.S.) from $128.3-million.

Sales of toys increased by 4 per cent, much less than analyst forecasts. But stationery and activities outpaced expectations by increasing four per cent, following a two-per-cent gain last quarter.

“Stationery and activities strength is a welcome surprise as it has been dragging on results for several years, but now appears to be in solid recovery mode,” said Neil Linsdell of Versant Partners.

Net income fell slightly to $17.1-million compared to $17.2-million a year earlier.

Earnings were equal to 51 cents per diluted share, up from 36 cents a year earlier.

But excluding the impact of options and warrants issued during its recapitalization, earnings per share was $1.04, above the average analyst estimate of 80 cents per share, according to a poll of two analysts by Thomson Reuters. One analyst had predicted the company's earnings per share at 63 cents while the other had expected 97 cents.

Mega Brands said its gross margins fell compared to the prior year because of the stronger Canadian dollar which increased the costs of toys manufactured in Montreal, and higher resin costs.

Cost of sales were up to $81-million from $74.7-million.

Mega Brands said retail sales of its products was strong in the quarter but retailers' caution in bringing in inventories delayed some orders until the final quarter of the year.

“It's just more of a just-in-time and I think that's what is really happening out there in retail and not just in the toy industry, but in general,” Bertrand told analysts.

Gerrick Johnson of BMO Capital Markets said the results were in line with his forecasts and further signalled that it is putting its past problems behind it.

“I think the turnaround story is definitely on track...and I think the fourth quarter is going to be good for these guys,” he said from New York.

Mega Brands' results have been steadily improving for the most part since several recalls of its magnetic toys reduced sales and nearly forced the company into bankruptcy.

It hopes to be back to $500-million of annual revenues within four years.

It recently concluded its third major new licensing deal in the past year by joining with Britain's Mind Candy to develop toys based on the Moshi Monsters online world.

Under the multi-year agreement Mega Brands will develop a range of Mega Bloks construction sets, Rose Art activity sets as well as 3D Breakthrough puzzles for the global market.

Mega Brands designs, manufactures and markets toys and stationery products in more than 100 countries.

It has some 1,300 employees with offices, manufacturing facilities and distribution centres in 14 countries.

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