Commentary

July 21, 2009 (FinancialWire) (By Philip Holmes) — Stocks ended up on Monday as earnings season shapes up, in some quarters, to be better than forecast. Plus, toymakers face a tough holiday season, but Hasbro (NYSE: HAS) and Mattel (NYSE: MAT) are holding on with distinctly different strategies.

The Dow Jones industrial average finished ended the day at 8,848.15, up 104.21 points, while the Standard & Poor’s 500-stock index gained 10.75 points to close at 951.13. The Nasdaq composite index rose 22.68 points to end the trading session at 1,909.29.

Johnson Controls, Eaton, Hasbro and Halliburton all posted earnings results on Monday, and each beat Wall Street expectations for EPS.

The fortunes of consumer discretionary companies don’t look good, according to BusinessWeek’s Ben Steverman. Consumers are fearful, as job losses mount and credit card limits are pulled back, and they’re not making as many frivolous purchases.

According to Steverman, this darkens the holiday prospects of companies ranging from toymakers to motorcycle makers. Harley-Davidson said it will be shipping 25% to 30% fewer bikes than it did last year; sales are down at Mattel.

But Mattel is hanging in, as is its chief domestic rival, Hasbro. Hasbro saw its Q2 earnings up 5%, while Mattel said in July 17 that its earnings were up a big 90% during the quarter. BW’s Chris Palmeri takes a look inside the two companies’ strategies and finds two very different themes.

According to Palmeri, “Hasbro has continued to invest in risky entertainment ventures, as part of a strategy to extend its famous toy brands into TV, the Web and the big screen. Mattel, by contrast, is playing it much more conservatively, cutting costs and husbanding its cash for better days.”

Hasbro is spending big on a cable television joint venture with Discovery Communications. The company also spent $90 million renewing license agreements with Marvel Entertainment and Lucas Films.

Mattel is cutting costs — total of $200 million in cuts for 2009 and 2010. But, as Palmeri points out, “some of its core brands such as Hot Wheels and Fisher-Price are shrinking. Barbie sales worldwide were down 15% in the second quarter.”

Some companies will spend for market share during a recession, but what to make of toymakers? The big ones have moved beyond core competencies, with a particular focus on entertainment projects. It has made sense to dimensionalize key brands in recent years. But it’s one thing to bank licensing fees; it’s quite another thing to buy into a cable network.

Still, you have to hand it to Hasbro for taking such risks. Minding the balance sheet and cutting costs, as Mattel is doing, is prudent in the short run. But you risk having a smaller company down the road, with smaller brands. What they need is a successful Barbie movie starring Paris Hilton.

The Investrend Economics Calendar lists Weekly Chain Store Sales (8:55 a.m.), Fed Chairman Bernanke gives Congressional testimony (10 a.m.).

The Investrend Events Calendar showcases MR at American Association for Clinical Chemistry Conference 2009; NRG Shareholders Meeting.

The Investrend Money Index is an indicator of the depth of market direction or indirection. While not always including the same stocks, the NYSE/NASDAQ 50 Most Actives indicate the direction in which the mass of money is flowing. Last session’s trading showed 39 advancers versus 11 decliners. Advancers were led by Human Genome Sciences, Inc. (NASDAQ: HGSI) up 276.81%, Las Vegas Sands Corp (NYSE: LVS) up 14.78%, M G M Mirage (NYSE: MGM) up 8.04%, Ultra Real Estate Pr (NYSE: URE) up 6.67%. Decliners followed Citigroup Inc (NYSE: C) down 7.62%.

Investrend Website of the Day: http://asphalteden.com/

Quote of the Day: “Always do sober what you said you’d do drunk. That will teach you to keep your mouth shut.” Ernest Hemingway

Today is: Liberation Day in Guam.

Happy Birthday: Jean Picard, Ernest Hemingway, Isaac Stern, Don Knotts, Janet Reno, Garry Trudeau, Robin Williams, Jon Lovitz, Josh Hartnett.

Today in History: In the market square of Springfield, Missouri, in 1865, Wild Bill Hickok shot Dave Tutt dead in what is regarded as the first true western showdown. At Adair, Iowa, in 1873, Jesse James and the James-Younger gang pulled off the first successful train robbery in the American West. CBS’s New York City station began broadcasting the first regular seven days a week television schedule in the U.S. in 1931. The world’s lowest temperature was recorded in 1983 at Vostok Station, Antarctica at -89.2°C (-129°F). In Jackson, Michigan, in 1984, a factory robot crushed a worker against a safety bar in apparently the first robot-related death in the United States. The fully restored USS Constitution (aka “Old Ironsides”) celebrated her 200th birthday by setting sail in 1997 for the first time in 116 years.

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