Spin Master Corp. (TSX:TOY), one of the world’s largest children’s entertainment companies, released its second-quarter earnings results and raised its guidance for 2017 after the market closed yesterday, and its stock has responded by soaring more than 15% in today’s trading session. Let’s break down the quarterly results and the new guidance to determine if the rally can continue and if we should be long-term buyers today.
A very strong quarter of double-digit growth
Here’s a quick breakdown of 10 of the most notable statistics from Spin Master’s three-month period ended on June 30, 2017, compared with the same period in 2016:
| Metric | Q2 2017 | Q2 2016 | Change |
| Total gross product sales | US$283.17 million | US$186.02 million | 52.2% |
| Total gross sales | US$300.74 million | US$198.38 million | 51.6% |
| Total revenue | US$276.65 million | US$179.36 million | 54.2% |
| Gross profit | US$141.4 million | US$91.63 million | 54.3% |
| Gross margin | 51.1% | 51.1% | unchanged |
| Adjusted EBITDA | US$43.72 million | US$25.39 million | 72.2% |
| Adjusted EBITDA margin | 15.8% | 14.2% | 160 basis points |
| Adjusted net income | US$22.22 million | US$11.7 million | 89.9% |
| Adjusted earnings per share (EPS) | US$0.22 | US$0.12 | 83.3% |
| Free cash flow (cash use) | US$24.84 million | (US$11.03 million) | N/A |
A bump in its guidance
As a result of its very strong financial performance in the first half of 2017, Spin Master raised its guidance for the full year. Here’s a breakdown of its new guidance compared with its previous guidance:
| Metric | New Guidance | Previous Guidance |
| Gross product sales growth (excluding Swimways) | Mid-20% growth range | Mid to high single-digit growth |
| Gross product sales growth (including Swimways) | Low 30% growth range | Low teens growth range |
| Adjusted EBITDA margin (including Swimways and Toca Boca) | 100 basis points over 2016 | In line with 2016 |
Should you buy Spin Master today?
It was a phenomenal quarter overall for Spin Master, and it capped off an outstanding first half of the year for the company, in which its revenues increased 47.9% year over year to US$504.4 million, its adjusted net income increased 53.6% year over year to US$35.77 million, and its adjusted EPS increased 45.8% year over year to US$0.35.
I think the market has reacted correctly by sending Spin Master’s stock soaring today, and I think it could continue higher from here, because investors will continue to pay up for its incredible growth rate. With all of this being said, I think Foolish investors should consider beginning to scale in to long-term positions in Spin Master over the next couple of trading sessions.
