Mattel Inc, maker of Barbie dolls and Hot Wheels cars, reported a 33 percent drop in first-quarter earnings on higher costs.
The news came the day after smaller rival Hasbro Inc also reported a huge drop in profit due to higher costs.
While some of the costs at Hasbro stemmed from its new television channel, both companies are paying more for fuel, resin and freight. They are also fighting higher labor costs in China, where most of their toys are made.
Both Mattel and Hasbro have said they will raise prices this year to offset costs.
Mattel, the No. 1 toy company, has also been spending a lot on litigation costs in its long-running copyright lawsuit against rival MGA Entertainment Inc over the popular Bratz dolls.
Mattel's statement on Friday did not give a specific figure on the legal costs, but many analysts were expecting them to weigh on profitability.
First-quarter net income fell to $16.6 million, or 5 cents a share, from $24.8 million, or 7 cents a share, a year earlier. The earnings met the analysts' average estimate, according to Thomson Reuters I/B/E/S.
Both companies beat Wall Street expectations on the revenue front in the seasonally weak first quarter. Mattel's sales rose 8 percent to $951.9 million, well ahead of the analysts' average estimate of $903.7 million.
Sales rose at all units except the ailing Fisher-Price pre-school toy business, which was down 2 percent. Global sales for Barbie were up 14 percent.
(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn)