Toy maker Mattel Inc posted a higher-than-expected quarterly profit on Friday as cost cuts offset a decline in sales and the impact of the stronger U.S. dollar, sending its shares up more than 3 percent.

Mattel, whose brands include Barbie and Hot Wheels, has shed 1,000 jobs, shaved corporate travel expenses and trimmed advertising and distribution costs as demand for toys has weakened in the recession.

In the past quarter, it cut roughly $91 million of costs in areas such as administration and advertising.

Net profit for El Segundo, California-based Mattel jumped to $21.5 million, or 6 cents a share, in the second quarter from $11.8 million, or 3 cents a share, a year earlier.

Analysts on average expected 1 cent per share, according to Reuters Estimates.

Wedbush Morgan Securities analyst Chris White said the market was heartened by how well Mattel controlled costs.

If the company can grow earnings on a sales decline by cost-cutting, then what can they do when sales actually stop falling?

Sales in the quarter fell 19 percent to $898.2 million. The stronger U.S. dollar, which reduced the value of overseas sales, accounted for 5 percentage points of the decline.

Barbie sales fell 15 percent despite elaborate steps such as hosting a fashion show in New York and opening a six-story store in Shanghai meant to stoke demand for the doll, which marks its 50th year in 2009.

MOVIE-LESS

Mattel's top rival Hasbro Inc is ahead this year in the movie-based segment with toys linked to summer films such as Transformers - Revenge of the Fallen and G.I. Joe - The Rise of the Cobra.

Quarterly sales in Mattel's entertainment unit fell 32 percent from the year-earlier period when it had toys linked to movies such as Kung Fu Panda and Speed Racer.

Mattel also faced a drastic pullback in inventory at retail stores, which are putting fewer toys on shelves to dodge deep discounts or excess merchandise later.

I'd say retailers are still very cautious on their inventory positions, as are we, Mattel Chief Executive Robert Eckert said in a conference call.

But that trend could ease as the holiday season nears, Wedbush's White said.

Mattel has said it must cut the number of toys it makes in addition to reducing capital spending, to be successful in 2009. It has also said it would rather wait to make toys after determining consumers' preferences than end up with excess or unwanted products.

Mattel shares rose 3.2 percent to $16.70 in early trade on the New York Stock Exchange. (Reporting by Aarthi Sivaraman; Editing by Lisa Von Ahn, John Wallace and Matt Daily)

California