April 22, 2008 / 9:02 PM / 10 years ago

UPDATE 2-RC2 posts lackluster Q1 results; cuts 2008 profit view

(Adds analysts’ comments)

By Dhanya Skariachan

BANGALORE, April 22 (Reuters) - Toymaker RC2 Corp RCRC.O, plagued with product recalls, posted a lower-than-expected quarterly profit, hurt by a decline in product sales amid a sluggish retail environment, and cut its 2008 earnings outlook, sending its shares down 10 percent.

The orders from RC2’s retailer customers have been conservative in the first quarter, Robert Baird analyst David Cumberland said from Chicago. RC2’s customers include Wal-Mart (WMT.N), Target (TGT.N) and Toys R Us.

The lackluster results come a month after the U.S. Senate approved a bill to crack down on dangerous consumer products following a year of recalls of millions of lead-tainted toys and other hazardous products by Mattel Inc MAT.N, RC2 and other toy companies.

RC2 stock has fallen nearly 51 percent in the past year, while the wider S&P 1500 Leisure Equipment & Products Industry Index .15GSPLEP slid nearly 24 percent.

The toymaker, based in Oak Brook, Illinois, posted a first-quarter net profit of $2.0 million, or 11 cents a share, compared with $8.1 million, or 37 cents a share, a year ago.

The results were hurt by recall-related costs of $1.5 million, or 5 cents a share.

RC2’s net sales fell 17 percent to $93.3 million.

Analysts on average had expected the toy company to earn 26 cents a share, before special items, on revenue of $103.9 million, according to Reuters Estimates.

The mother, infant and toddler products category showed a decrease of about 10 percent, while the preschool, youth and adult products category saw a decrease of about 23 percent in the first quarter.

For 2008, RC2 expects earnings from continuing operations of about $1.90 a share to $2.00 a share, down from its prior outlook of about $2.00 a share to $2.20 a share.

The outlook excludes the impact of any potential stock repurchases and additional recall-related costs, including any legal fees or other payments that parties affected by the 2007 product recalls might claim, the company said.

Analysts were expecting the company to earn $1.97 a share.

“The company’s guidance implies revenue decline in 2008,” Piper Jaffray analyst Anthony Gikas said from Minneapolis.

Last year, RC2 recalled several products, including potty training seats and toys from its Thomas & Friends Wooden Railway and Knights of the Sword product lines due to unsafe levels of lead content.

However, Gikas said the recalls would not have a long-term impact on the company.

Both analysts have a “neutral” rating on the stock.

Shares of the company were down $1.90 at $17.50 in trading after the bell. They closed at $19.40 Tuesday on Nasdaq. (Editing by Himani Sarkar)

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