New recall spares Mattel

This time the culprit is a toy called Bindeez, which contains small beads that are found to mimic the effects of a date-rape drug. The toy's Australian manufacturer said the problem had been traced to a Chinese factory that apparently used a toxic chemical in the manufacturing process. It seems to dry faster than the safe stuff. (The nasty chemical in question metabolizes into gamma-hydroxy butyrate (GHB), also known as fantasy or Grievous Bodily Harm.) Bindeez is especially hot in Australia but it's gaining popularity elsewhere. In the U.S., it's sold as "Aqua Dotz." Obviously this doesn't help China's efforts to quell the criticism of how its products are made. Here's an AP story.

By the way, shares of Mattel have barely budged since that mostly positive story in this week's Barron's. (The stock is down this morning but so is everything else.) The piece quotes Oppenheimer analyst Linda Bolton Weiser as saying "there's very little, if any, downside risk" - despite recalls of 20 million products made in China. Swift PR action is cited (even though the company delivered mixed messages on who was at fault - first blaming Chinese factories and then its own design).

Mattel is trading at just 14.5 times estimated earnings for this year, versus about 16 for the Standard & Poor's 500 index. That gap could close as the recall fiasco fades and Mattel's sales pick up. Continued international expansion should help -- overseas sales already account for nearly half the company's total -- and the product lineup looks strong. Among Mattel's hottest toys right now: the Fisher Price Smart Cycle, a stationary bike for toddlers that plugs into a TV; the toy guides the rider through scenes like Math Mountain, Letter Creek and Shape Lake. For next year, Mattel has some big merchandise tie-ins planned with Hollywood movie blockbusters, including Kung Fu Panda, an animated comedy from Dreamworks Animation SKG (DWA), The Dark Knight, a Batman sequel, and Speed Racer, both from Time Warner's (TWX) Warner Brothers. Speed Racer is based on the old 1960s cartoon about the derring-do of a race-car driver and directed by the people who were behind the successful Matrix film series. It's a very made-for-toys movie, says Oppenheimer's Weiser.

Of course, all this assumes there isn't another big recall. But what about a small recall? This week, the El Segundo-based toymaker recalled over 170,000 Fisher-Price toy kitchens because small pieces pose a choking hazard to young children. At least they were made in Mexico and not China.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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