MONTREAL — Toymaker Mega Brands Inc. expects its association with two big-budget movies and... Toymaker pins 2007 hopes t
MONTREAL — Toymaker Mega Brands Inc. expects its association with two big-budget movies and other new products will strengthen sales as it does battle against resurgent competitor Lego.
"Entering 2007, we have a great product lineup in all our categories, many exciting new products and an exceptional licensing portfolio," CEO Marc Bertrand said Monday in a conference call to discuss 2006 results.
But investor reviews were negative, and Mega Brands shares dropped more than nine per cent to close at $23 after fourth-quarter profits faded to US$2.8 million from a year-earlier US$20.9 million.
In late 2006, Mega Brands reached a US$13.5-million settlement of a lawsuit arising from the death of a toddler and injuries to other children who swallowed pieces of Magnetix building sets.
The Montreal-based company, which reports in U.S. dollars, said product replacement expenses totalled $16 million for the year, including $13.8 million in the fourth quarter.
Including product liability settlement expenses, integration costs and legal fees, there were full-year costs of $44.6 million related to Magnetix, of which $27 million was listed for the fourth quarter.
Annual sales jumped 42 per cent to $547.3 million from $384.9 million. But fourth-quarter sales slipped to $164.8 million from a year-earlier $166.2 million, and earnings per share fell to eight cents from 61 cents.
The 2006 results were disappointing and resulted from the Magnetix trouble, management changes and integration requirements, Bertrand told analysts.
"The fundamentals of our business and our strategy remain intact," he said. "Our team has done a good job managing the issues and protecting the long-term interests of our shareholders."
With the cost of insurance for Magnetix products manufactured before last May being "prohibitive," Mega Brands has decided to self-insure these risks.
The company enacted changes sought by the U.S. Consumer Products Safety Commission. It added warning labels, used new glue to hold the magnets, recalled old products and repackaged the entire brand.
"We’ve made all the changes to the quality of the product and we don’t believe there’s any risk going forward in terms of all this new production we’ve put in place as of April, May last year," Bertrand said.
The lawsuits, integration challenges and a legal battle with the former owners of subsidiary Rose Art are distractions for management as its strongest competitors have shaken off their own problems, said analyst Gerrick Johnson.
"Lego as a competitor is much more emboldened than it had been in the past and is fighting tooth and nail for share that it had lost to Mega Blocks, as it was known before," the BMO Capital Markets analyst said from New York.
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