Mattel defends actions leading up to recalls

updated 6:16 p.m. ET Aug. 14, 2007

NEW YORK - With its reputation bruised by the second major recall of Chinese-made toys tainted with lead paint in a matter of two weeks, Mattel Inc. on Tuesday defended the measures it has taken to ensure the safety of its toys.

“I am disappointed in what has occurred and what has transpired,” Robert Eckert, chairman and CEO of Mattel, the world’s largest toy maker, said in an conference call with the media Tuesday.

“No system is perfect,” he said. “We are continuing to test thousands of toys, and we could have additional issues.”

Mattel — which had cultivated an image of tightly controlling production in China — has increased its monitoring of Chinese factories and launched an advertising campaign in newspapers such as The New York Times and Wall Street Journal.

Still, with China offering the cheapest source of labor supply, Mattel, like other toy makers, continues to do business there.

Despite negative publicity, investors haven’t pummeled the stock. Shares of Mattel fell 57 cents, or 2.4 percent, to $23 Tuesday, on a day when broad market indexes fell. The stock is trading at its low end of its 52-week range of $21.52 and $29.71 per share.

Mattel’s worldwide recall involved 436,000 die cast “Sarge” cars related to the character from the movie “Cars” because it contained lead paint. It also extended a November 2006 recall of toys that contain magnets that can be swallowed by children; they included Polley Pocket dolls and Batman action figures. That recall now encompasses 18.2 million magnetic toys worldwide.

The recalls follow the actions taken by the company two weeks ago when it recalled 1.5 million products from its Fisher-Price unit worldwide. That recall, for lead paint, involved characters such as Dora the Explorer, Big Bird and Elmo.

The latest recall sparked fresh concerns over whether Mattel should have warned the public sooner.

NBC News video Mattel chief discusses recall Aug. 15: Robert Eckert, Mattel’s chairman and chief executive, talks with TODAY’s Meredith Vieira about the massive Mattel toy recall. Today show

The Consumer Product Safety Commission is looking into whether the Fisher-Price unit let the agency know as quickly as it should have its lead paint problems. And Mattel was questioned by the press again about the timing of its disclosures on the latest recall.

Company officials said Mattel discovered there may be a potential lead paint issue between the end of July and the beginning of August and notified the CPSC a few days later, after doing more testing.

The problem was discovered as part of a wide-scale investigation into all of its Chinese factories following the discovery of the Fisher-Price lead paint problem, the company said.

But Gerrick Johnson, an analyst at BMO Capital Markets, questioned why it took so long for Mattel to disclose the most recent recalls when the company incorporated a $30 million charge for recalled product in its second quarter filings with the Securities and Exchange Commission.

“You have to alert the public right away,” he said. “I think it’s a public relations nightmare more than anything else.”

In the Aug. 3 SEC filing, Mattel said that additional information became available in July on “other smaller product recalls and similar charges were recorded.”

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