Oct. 15 (Bloomberg) -- Mattel Inc., the world's largest toymaker, reported third-quarter profit and sales that missed analysts' estimates after the recall of 21 million Chinese-made products in the past two months.

The recalls of Barbie kitchen sets with excessive amounts of lead paint and Polly Pocket dolls with magnets that might be swallowed by children cost Mattel $31 million after taxes in the quarter. The toymaker apologized to China in September, taking the blame for faulty designs, and stepped up inspections as it entered the holiday selling season.

``It's tricky to know how all the recalls will flow through in the fourth quarter,'' Ira Carnahan, who helps manage $400 billion, including 12.8 million Mattel shares, at T. Rowe Price Group Inc. in Baltimore, said today.

Net income declined 0.9 percent to $236.8 million, or 61 cents a share, from $239 million, or 62 cents, a year earlier, Mattel said today in a statement. Revenue rose 2.7 percent to $1.84 billion.

Delays related to product testing lowered sales as much as $50 million, especially Barbie and Fisher-Price preschool products, Chief Financial Officer Kevin Farr said today on a conference call with analysts and investors.

The recalls prompted Mattel to drop problem vendors and impose more stringent safety rules. Chief Executive Officer Robert Eckert testified last month before two congressional committees investigating recalls of children's products.

All toys that Mattel plans to ship to stores for the holidays have been tested, Eckert said on today's call.

Needle, Haystack

``The testing program is ongoing as we continue to look for the needle in the haystack,'' Eckert said. ``The anxiety about the recalls is largely behind us.''

Mattel, based in El Segundo, California, fell 23 cents to $22.22 at 4:01 p.m. in New York Stock Exchange composite trading. The stock has declined 5.8 percent since the first recall.

Mattel had 8 cents a share in recall-related charges, Farr said. Excluding that, the company earned 69 cents. Analysts surveyed by Bloomberg had estimated Mattel to post average profit of 70 cents on revenue of $1.91 billion.

``People will continue to buy toys this holiday, and they will continue to buy Mattel-made toys,'' said Bob Goldsborough, who helps manage $14.3 billion, including 2.77 million Mattel shares, at Ariel Capital Management LLC in Chicago.

International Sales

International sales rose 10 percent and were helped by a weaker dollar. U.S. revenue declined 2 percent, Mattel said. Fourth-quarter sales may be lowered if import licenses in Brazil aren't soon reinstated, Mattel said.

Mattel Girls and Boys Brands sales climbed 5.6 percent to $1.14 billion.

Barbie sales dropped 4 percent after four quarters of increases, including a 19 percent decrease in the U.S. Shipping delays and weakness in fantasy-themed dolls drove the decline, Mattel said. International sales rose 6 percent.

``We do need to work more on Barbie,'' Eckert said. ``We have slipped again in '07.''

Sales of Hot Wheels, Matchbox and other cars climbed 9 percent. Entertainment sales surged 29 percent, helped by toys from the 2006 Walt Disney Co. movie ``Cars'' and electronic toys from Radica Games Ltd., which Mattel acquired last year.

Fisher-Price

Fisher-Price revenue climbed 1.2 percent to $799.8 million. Sales of licensed Fisher-Price toys dropped 30 percent, hurt by fewer Dora the Explorer purchases, while baby products rose.

Mattel, whose T.M.X. Elmo was hard to find on store shelves last year, is touting the Smart Cycle, a stationary bike that plugs into the television and lets children play educational games. The toymaker will introduce a new Elmo doll next month.

U.S. toy sales have gained 1.7 percent this year through August from 2006, according to NPD Group Inc., a Port Washington, New York-based market research firm.

About 65 percent of Mattel's products, including Barbie dolls and accessories, are made in China, which produces four- fifths of U.S. toys.

Mattel recalled 1.5 million Fisher-Price preschool toys on Aug. 1. Two weeks later, it called in 436,000 die-cast vehicles for lead and 18.2 million Barbie, Polly Pocket and other toys with magnets that may detach. In early September, Mattel withdrew 848,000 Barbie and Fisher-Price toys for lead.

To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net.

Last Updated: October 15, 2007 16:13 EDT