Mattel Inc. said on Thursday it expects the recall of Chinese-made toys, such as popular preschool characters like Sesame Street's Elmo and Big Bird, to result in a charge of $30 million.
The estimate comes a day after the No. 1 toymaker recalled 1.5 million toys that were made by a contract manufacturer in China for the company's Fisher-Price unit. Shares fell 8.7 percent in early electronic trading.
They were recalled because their non-approved paint may contain too much lead -- linked to health problems, including brain damage, in children.
Representatives from Mattel were not immediately available for further comment.
Of the 1 million products recalled from the U.S. market, Mattel said about 30 percent reached store shelves.
Independent toy industry consultant Christopher Byrne said the impact to Mattel financially as well as in the court of public opinion should be negligible.
Mattel's systems are so strong that they were able to contain two-thirds of the product from ever getting into the marketplace, Byrne said. That's good news and should make people very confident about Mattel.
But Mattel shares fell $2.03 to $21.55 before the bell. The shares have traded within a 52-week range of $29.71 and
Mattel said in a filing with the U.S Securities and Exchange Commission that its second-quarter results would be adjusted to reflect the $30 million charge. The company's second-quarter revenue totaled $1.02 billion. Fisher-Price accounted for sales of $410.4 million.
Mattel said it was reviewing procedures with respect to all of its Chinese-made products, and said it was possible additional issues could surface in the future.
The recalled toys were manufactured between April 19 and July 6 and sold at stores across the U.S. between May and August 1, the company said.
Mattel is also expanding its testing programs to ensure that painted toys from third-party manufacturers are safe before being sent to customers.
The company is asking U.S. stores and consumers to return 967,000 plastic toys and is recalling another 533,000 from other countries, including Britain, Canada and Mexico.
The recall is Mattel's largest since a 1998 recall of about 10 million Power Wheels vehicles after reports that the ride-on cars and trucks could overheat and cause fires while being ridden.
(Reporting by Justin Grant)