It was a blue Christmas in toyland.
Weak demand over the holidays for toys like Barbie and Matchbox led Mattel's results to fall short of expectations in the key holiday quarter. A litigation charge also weighed on results and net income fell 17 percent.
Still the results from the world's largest toymaker came in stronger than the overall toy industry, and company executives vowed to do better in 2013. The fourth quarter is key because toy makers can make up to 40 percent of annual sales during the period.
The news follows smaller-rival Hasbro's announcement last week that the maker of Scrabble and Furby robotic pets would cut jobs after revenue came in lower than expected for the quarter on weak demand.
Toy makers are facing a slowdown in developed markets such as the U.S. and Europe as mobile devices and electronics steal attention from toys and consumers hold back on spending due to the uncertain economy.
In 2012, overall U.S. toy sales declined slightly to $16.5 billion from $16.6 billion, according to research firm the NPD Group.
During the holiday quarter, consumers faced what Mattel CEO Bryan Stockton called the "1, 2, 3 economic punch," of shrinking GDP, waning consumer confidence and worry over the fiscal cliff.
"I'm not satisfied with our U.S. consumer take away and look to do better in 2013," said Stockton, who just finished his first year as Mattel's CEO. "Looking toward 2013, my second year as CEO, we see continued growth in the industry and plan to grow at Mattel."
There were some bright spots for Mattel. Even though sales of its iconic Barbie doll declined for the second straight quarter, sales of its other girls toys rose 55 percent on strength of doll brands like Monster High and Disney Princess.
And the company raised its dividend by 16 percent to 36 cents, payable on March 8 to shareholders of record on Feb. 22.
Mattel also said it would raise prices globally in 2013 by a low single-digit percentage, effective Jan. 1.
BMO Capital Markets analyst Gerrick Johnson said that although overall results were disappointing there were pockets of strength, like international growth, which rose 8 percent, compared with a 1 percent rise in North America.
"It was a little softer than I was looking for but by no means a disaster," he said.
The toy maker earned $306.5 million, or 87 cents per share, for the three months ended Dec. 31. That compares with $370.6 million, or $1.07 per share, a year ago.
Removing the litigation charge, earnings were $1.12 per share. Analysts surveyed by FactSet expected $1.15 per share.
The $137.8 million litigation charge stems from a long-running legal battle with toymaker MGA Entertainment Inc. over ownership "Bratz" dolls, which is in the process of wrapping up.
Revenue for the El Segundo, Calif.-based company rose 5 percent to $2.26 billion from $2.15 billion. Wall Street forecast $2.3 billion.
Its full-year net income edged up 1 percent to $776.5 million, or $2.22 per share, from $768.5 million, or $2.18 per share, in the prior year. Annual revenue increased 2 percent to $6.42 billion from $6.27 billion.
Shares of Mattel rose 44 cents, or 1.2 percent, to $38.07 in midday trading. They are near their 52-week high of $38.48 set Jan. 24. They traded as low as $30.15 in June.
AP Writer Michelle Chapman contributed to this report.