Making Toys Isn't Fun for Mattel, LeapFrog. And for Hasbro?

Earns Mattel Toy Slump
Gene J. Puskar/AP

It continues to be a blue Christmas for most of the country's toy makers. Mattel (MAT) and LeapFrog (LF) have seen their shares rocked this earnings season after warning that their holiday quarters weren't so hot. Rival Hasbro (HAS) is expected to hold up better when it reports in a few days, but it's still generally a gloomy climate for the manufacturers of playthings.

There isn't a lot of head-scratching going on about the sorry state of traditional toys. We live in the age of digital delivery, and the same kids who used to clamor for dolls and board games are now just as happy with consumer electronics and app store credits. There is still money being spent on kids, but it's just going somewhere else.

Let's dig a little deeper into the setbacks at Mattel and LeapFrog to see if Hasbro will be able to dodge this bullet.

Mind Over Mattel

Mattel's report last week was brutal. Worldwide net sales fell 6 percent from the prior year's holiday quarter as gains in Hot Wheels were more than offset by double-digit declines at Barbie and Fisher-Price.

This isn't a fluke, and it's not as if the prior year's fourth quarter was anything special. Worldwide net sales fell 6 percent that holiday quarter, too.

Barbie used to be the golden child at Mattel, but sales have been slipping in recent years. Friday's report saw Barbie sales plunging 12 percent. Mattel used to be able to counter Barbie's fading popularity with the rising presence of American Girl, but that line also posted a slight decline during the period.

Mattel is rewarding its investors for being patient. It's sticking to its quarterly payouts of 38 cents a share, a dividend that, when paired up with Mattel's sinking price, results in a hearty yield of 5.4 percent. It may not be sustainable if Mattel's financial performance continues to deteriorate. After all, the company paid more in distributions last year than it generated in earnings. However, at least shareholders are receiving some sort of consolation prize for seeing things through. The same can't be said for shareholders of LeapFrog, the electronic learning toy pioneer that has been slammed in recent quarters.

Kids are favoring cheap tablets over LeapFrog's gadgetry, and recent product rollouts haven't been enough to keep sales from plunging sharply. LeapFrog's stock has shed roughly two-thirds of its value over the past year, and there's no yield to support it.

Hanging on Hasbro

Hasbro reports next week. Analysts see net sales climbing nearly 5 percent higher for the holiday quarter, with earnings growing twice as quickly. Unlike Mattel, which has come up short against Wall Street's profit targets in each and every quarter of 2014, Hasbro hasn't missed in nearly a year.

Hasbro is making the most of the challenging market with toy lines dedicated to its proprietary Transformers, My Little Pony, and G.I. Joe franchises. Its licensed toy lines have been holding up better than the competition.

A healthy report out of Hasbro won't eradicate fears that the toy industry is on borrowed time. It will be the lone publicly traded maker of toys faring well this holiday season. That's a good place to be, but it will also make investors nervous about any potential slip. Hasbro is the relative winner in this niche, but the market's going to want it to be an absolute winner as well.

Motley Fool analyst Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Hasbro, LeapFrog Enterprises and Mattel. The Motley Fool owns shares of Hasbro. Try any of our Foolish newsletter services free for 30 days.Is your portfolio ready for what the new year has to offer? Check out our free report for one great stock to buy for 2015 and beyond.