DA DavidsonFirst time I've ever heard of this firm. GLTA
In the wake of a “big third-quarter upside surprise,” DA Davidson analyst Linda Bolton Weiser thinks Spin Master Corp.’s “situation improved,” seeing a pick up in point-of-sale results after several quarters with “severely constrained” retail inventory.
However, in a research report released late Monday, she cut her fourth-quarter sales and earnings expectations for the Toronto-based toy maker, due largely to a “big step-up” in marketing spending.”
On Nov. 3, Spin Master reported revenue of US$715-million, up 25 per cent from the previous quarter and 7 per cent year-over-year while exceeding the Street’s US$612-million estimate. Earnings per share of US$1.26 was an increase of 35 US cents from the same period a year ago and also ahead of the consensus projection of 91 US cents.
“TOY raised its 2021 gross product sales guidance to up mid-teens from up high-single digits, including a $50-million (9 per cent) shift to 4Q from 3Q,” said Ms. Bolton Weiser. “We are maintaining our 4Q21 estimate of up 6 per cent (vs. down 7 per cent in 4Q20), which results in 16 per cent for the full year, an increase from 11 per cent previously. For total revenue growth, TOY raised its 2021 guidance to slightly more than 20 per cent from mid-teens. We are lowering our 4Q21 total revenue to an increase of 7.4 per cent from 8.5 per cent due to a reduction in Digital Games to a rise of 20 per cent from 40 per cent, as kids return to school; our full-year estimate is now up 25 per cent vs. 19 per cent previously. TOY maintained its 2021 EBITDA margin guidance at the upper end of a mid- to high-teens range, which implies a year-over-year decline in 4Q21; we are lowering our 4Q21 estimated EBITDA margin to 8.8 per cent from 11.4 per cent (vs. 10.5 per cent in 4Q20). TOY implemented price increases in early 3Q21, but the magnitude was not high enough to maintain margins in toys. TOY expects a significant portion of annual marketing spending to come in 4Q; we are modeling a ratio of 16.3 per cent of sales vs. 14.3 per cent in 4Q20 and 16.6 per cent in 4Q18. Management admitted their 2021 guidance is conservative.”
In response to the quarterly release, the analyst raised her full-year 2021 EPS projection by 16 per cent to US$1.88 from US$1.62, above the consensus of US$1.79. Her 2022 estimate jumped 11 per cent to US$1.98 from $1.79 (versus $1.92).
However, Ms. Bolton Weiser trimmed her fourth-quarter estimate for this fiscal year to 15 US cents from 24 US cents. The Street expects 6 US cents.
Keeping a “neutral” rating for Spin Master shares, she lowered her target to $48 from $50, The average on the Street is $54.73.
“We remain NEUTRAL - it is unclear whether EBITDA margin (new high of 19.6 per cent in 2021) can improve from here,” she said.