Oct. 16 (Bloomberg) -- Mattel Inc., the world’s biggest toymaker, rose the most in three months in Nasdaq trading after its third-quarter gross margin widened on lower commodity costs.

Mattel advanced 88 cents, or 4.5 percent, to $20.46 at 4 p.m. in Nasdaq Stock Market trading, the largest gain since July 17. The shares have climbed 28 percent this year.

Gross margin, the share of sales after subtracting the cost of goods sold, widened to 51.3 percent from 46.2 percent a year earlier, Mattel said. That’s the highest gross margin rate in at least five years, according to Bloomberg data.

Lower input costs and royalties, along with “modest” price increases, contributed to higher margins, Chairman and Chief Executive Officer Robert Eckert and Chief Financial Officer Kevin Farr said on a conference call. The company also reduced advertising costs and capital expenditures, they said.

Eckert, 55, has focused on cutting costs this year as consumer spending has declined. Mattel is on track to save $90 million to $100 million this year from expense reductions and lower commodity costs, executives said on the call. The toymaker will strive to sustain margins at a 50 percent rate, executives said.

Worldwide sales of Barbie, who celebrated her 50th anniversary this year, dropped 8 percent. She has competition from dolls including Liv from Spin Master Ltd. and Moxie Girlz by MGA Entertainment Inc., according to Gerrick Johnson, an analyst at BMO Capital Markets in New York.

Liv, Moxie

“Barbie will probably be quite weak in the fourth quarter with the success that these new entrants, Liv and Moxie, are having in the marketplace,” Johnson said today in a telephone interview. “The new Barbie lines that have come out aren’t really that inspiring.”

Barbie is Mattel’s highest-margin product and accounts for 19.4 percent of Mattel’s total revenue, Johnson estimated. Sales of Barbie make up 35 percent to 40 percent of Mattel’s operating profit, he estimated.

Net income declined 3.5 percent to $229.8 million, or 63 cents a share, from $238.1 million, or 65 cents, a year earlier, the El Segundo, California-based company said in a statement. Revenue dropped 7.9 percent to $1.79 billion as consumers spent less on toys.

Analysts predicted profit of 64 cents a share, the average of seven estimates compiled by Bloomberg. Analysts put sales at $1.78 billion.

Worldwide sales of Hot Wheels climbed 9 percent in the quarter and American Girl brand sales rose 4 percent. Fisher Price revenue dropped 4 percent.

Pawtucket, Rhode Island-based Hasbro Inc., the world’s second-biggest toymaker, is scheduled to report results Oct. 19.

To contact the reporter on this story: Allison Abell Schwartz in New York at aabell@bloomberg.net

Last Updated: October 16, 2009 16:30 EDT