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Toy maker Mega Brands Inc. is continuing its slow recovery from near bankruptcy by posting a third consecutive quarter of improving financial results.

Boosted by stronger sales of franchise toys marketed to boys, the Montreal-based company earned $1.2-million (U.S.) or zero cents per share in the period ended June 30.

That compared to a loss of $13.3-million, or 36 cents per share for the same year earlier period.

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Mega Brands, which reports in U.S. dollars, said net sales during the seasonally slowest quarter of the year increased 12 per cent to $78.8-million, versus $70.1-million a year ago, on the continued strength in its preschooler products which include Thomas & Friends toys.

"All of our key performance indicators were positive during the quarter, with higher sales and improved gross margins," president and CEO Marc Bertrand said during a conference call.

The company says it also benefited from sales of branded toys from the movie 'Iron Man 2,' as well as Halo and Dragons Universe.

For the rest of the year, Mega Brands says it has a positive outlook with a scheduled rollout of its Thomas & Friends toys on the international market, and more retail shelf space ahead of the holiday shopping season.

"Our brands are performing at or above plan at retail, our operational team has continued to improve our supply chain and service to our customers and we are on track to achieve our 2010 plan," he told analysts.

Mr. Bertrand said the stationary and activities business has stabilized even though sales were down by $1-million.

Gerrick Johnson of BMO Nesbitt Burns said he was hoping for good results and still the quarter beat his own expectations.

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"Across the board, top to bottom, every line item was a little bit better so I think that's encouraging," he said in an interview from New York.

He added that it's nice to see that increased toy retail shelf space for Mega Brands and the availability of more products is starting to flow through to the financial results, which suggests even better numbers in the second half of the year.

But Mr. Johnson said the improved sales and profits have to be put into historical context because Mega Brands is reclaiming just a little of what it lost over the last several years.

Sales are just 65 per cent of the $121.5-million second-quarter peak in 2007, and net earnings are 30 per cent of the $4-million earned in the same period.

"Some people don't want to get too excited about the whole thing because we have come a long way down and there's a long way to go."

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