April 21 (Bloomberg) -- Mattel Inc., the world's largest toymaker, posted its first quarterly loss in almost three years on higher manufacturing costs in China and lower Barbie sales in the U.S.

Mattel dropped the most since October 2002 in New York trading.

The net loss was $46.6 million, or 13 cents a share, in the first quarter, versus net income of $12 million, or 3 cents, a year earlier, the company said today. Analysts predicted a profit of 1 cent. Sales declined 2.2 percent to $919.3 million, the maker of Hot Wheels and Matchbox cars said.

Sales of Barbie fell 12 percent in the U.S. as the 49-year- old doll faced competition from Hannah Montana and Ganz's Webkinz. Mattel, which recalled more than 21 million Chinese-made products in 2007, expects Chinese manufacturing costs to rise further. The yuan has climbed 10 percent against the dollar over the past 12 months, and inflation in China is near an 11-year high.

``Retailers were still trying to get rid of the product from the end of the year and they didn't need to order more Barbie,'' Gerrick Johnson, an analyst at BMO CapitalMarkets in New York, said in an interview. ``People say the first quarter doesn't matter. It does. The first quarter reveals the mistakes you made in the fourth quarter.''

Without currency gains, total revenue would have declined at least 7 percent.

Shares Plunge

Mattel, based in El Segundo, California, dropped $1.78, or 8.2 percent, to $20 at 4:02 p.m. in New York Stock Exchange composite trading. The shares have climbed 5 percent this year.

Nine analysts surveyed by Bloomberg projected average profit of 1 cent, while eight predicted sales of $933.2 million.

Other selling and administrative expenses totaled 36 percent of sales, up from 31 percent a year ago. That contributed to an operating loss of $36.5 million in the quarter.

The first quarter accounted for 2 percent of profit and 16 percent of sales in 2007.

Mattel may raise prices this year in the ``mid-to-high single-digit range'' to counter higher costs, the company said Jan. 31.

The recalls of Sesame Street vehicles with paint containing excessive amounts of lead and Polly Pocket dolls with magnets that may detach and get swallowed by children cost Mattel $110 million in 2007 for toy returns and legal, advertising and testing expenses.

Mattel expects to boost 2008 sales with toys tied to the new Batman, ``Speed Racer,'' and ``Kung Fu Panda'' films.

Elmo Live, a follow-up to 2006's popular T.M.X. Elmo, will go on sale later this year. The doll waves its arms, sings, opens and closes his mouth, sits and crosses its legs.

Hasbro Inc., the world's second-largest toymaker, reported an unexpected increase in first-quarter profit today on sales of Transformers action figures and Littlest Pet Shop dolls.

To contact the reporters on this story: Heather Burke in New York at hburke2@bloomberg.net; Mark Clothier in Atlanta at mclothier@bloomberg.net.

Last Updated: April 21, 2008 16:12 EDT