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By Heather Burke
Aug. 14 (Bloomberg) -- Mattel Inc., the world's biggest toymaker, is recalling Chinese-made products for the second time in two weeks on concerns that children will swallow magnets attached to the toys.
The recall includes 18.2 million Barbie, Polly Pocket, Batman and Doggie Day Care toys with magnets, the El Segundo, California-based company today in a statement. Mattel also removed 436,000 die-cast vehicles with lead paint.
Mattel called back more than 20 million toys this month, and the company may have to find new sources of low-cost goods as China struggles to repair its reputation as an exporter. Mattel is pulling toys off shelves going into the holiday season, which accounted for 69 percent of 2006 sales.
``It's never a good time to have a recall,'' said Bob Goldsborough, who helps manage $14.9 billion, including 4.3 million Mattel shares, at Chicago's Ariel Capital Management LLC. ``It's very embarrassing, and it means a lot more work.''
Mattel gets 65 percent of its toys from China. Chinese goods including ``Thomas & Friends'' wooden railroad toys and tainted pet food with Chinese additives have been recalled in recent months, and the U.S. banned some Chinese toothpaste. The world's most populous nation supplies 80 percent of the toy market.
Going to China
``Businesses go to China for the lower labor and materials costs, but the problem is that safety is being sacrificed,'' said Rachel Weintraub, director of product safety for the Consumer Federation of America. The Washington-based group advocates independent third-party testing and stricter laws for product inspections.
Mattel, the maker of Hot Wheels vehicles and Elmo dolls, fell 57 cents, or 2.4 percent, to $23 as of 4:01 p.m. in New York Stock Exchange composite trading. The stock was up 1.5 percent this year.
No injuries were reported from the products recalled today, U.S. Consumer Product Safety Commission chief Nancy Nord said in a news conference. About 9.75 million of the recalled toys are in the U.S.
Costs from today's recall are included in a $30 million reduction in second-quarter operating income announced Aug. 2, Mattel Chief Executive OfficerBob Eckert said in an interview.
Mattel said on Aug. 1 it was recalling 1.5 million Fisher- Price preschool products, including Chinese-made Sesame Street and Dora the Explorer toys, because they may contain excessive levels of lead. The company stopped using the manufacturer, Li Da Industrial Co., and has said it would review the production methods of all its contractors in China.
The owner of one of Li Da's factories committed suicide at a toy warehouse, according an employee from its human resources department.
More Supervision
Mattel said it has increased oversight of toy production and will begin testing each batch of finished toys. Jim Walter, head of worldwide quality assurance, said he went to China to meet with vendors.
``We changed our system to make sure this doesn't happen again,'' Eckert said in an interview. ``But no system is perfect.''
The recall of the 63 magnetic toys, which were manufactured between January 2002 and Jan. 31, 2007, expands on a call last year to remove eight products. New standards have been developed for magnets, and Mattel wanted to apply them retroactively. Most of the items recalled today are no longer on store shelves, Eckert said.
Fatal Holes
If children swallow more than one magnet, they can attach to each other and cause potentially fatal holes or blockage in the intestines, the CPSC said. Mega Brands Inc. recalled 7.8 million construction sets in two stages between March 2006 and April 2007, according to CPSC data.
The 436,000 ``Sarge'' vehicles from the ``Cars'' movie contained lead and were manufactured between May and July 2007. The toy's manufacturer, Early Light Industrial Co., hired another company to paint toy parts. The subcontractor, Hong Li Da, violated Mattel's rules and used paints from a supplier that wasn't certified, the toymaker said. Lead may be poisonous if ingested by children and can cause serious health problems.
Mattel today ran full-page ads in the New York Times, Wall Street Journal and USA Today with a letter from Eckert. He asked people to return affected toys and said the company has already taken steps to make toys safe.
Careful Attention
Mattel needs to ``properly address the consumer reaction to the news by asserting their careful attention to manufacturing quality,'' said Thomas Russo, who helps manage $3 billion, including Mattel shares, at Garner Russo & Gardner in Lancaster, Pennsylvania. ``They do have very high ethical standards.''
Carter Keithley, president of the Toy Industry Association, said the New York-based group is considering changing some of its safety standards. He didn't give details.
In May, the group adopted new standards for magnets in toys, and required warnings to be printed on packages of certain products that contain magnets, he said.
``It's not ever something we like to see, but it means the system is working and that unsafe toys are being recalled,'' said Keithley.
(Additional information regarding the recalled products may be found at http://www.service.mattel.com or http://www.cpsc.gov/)
To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net.
Last Updated: August 14, 2007 16:59 EDT
