Toymaker Mattel Inc reported a smaller-than-expected decline in quarterly revenue, helped by gains in its Hot Wheels and American Girl brands as it heads into the crucial holiday shopping season.

Mattel, maker of Barbie and Elmo, and rival Hasbro Inc face another tough holiday as key retailers Wal-Mart Stores Inc and Target Corp have already begun offering steep discounts to woo shoppers.

Chief Executive Robert Eckert said company revenue was still under pressure due to the weak economy, a move by retailers to tightly manage inventory and a dearth of toy lines tied to movies and other entertainment.

That said, we are continuing to make strong progress on reducing costs, rebuilding margins and generating strong cash flow, he said in a statement.

Net profit in the third quarter fell to $229.8 million, or 63 cents a share, from $238.1 million, or 65 cents a share, a year earlier.

Analysts on average were expecting earnings of 63 cents a share, according to Thomson Reuters I/B/E/S.

While headline earnings were essentially in line, we think the quality of results was slightly better, underlying trends are improving and we continue to like the shares for 2010, said Stifel Nicolaus analyst Drew Crum.

Mattel, which also makes action figures and toys based on Walt Disney movies, said net sales fell 8 percent to $1.79 billion, with declines of 2 percent in the United States and 14 percent internationally. Currency exchange rates reduced international revenue by 5 percentage points, Mattel said.

Analysts expected revenue of $1.78 billion.

Top line was decent considering the currency impact, Sterne, Agee & Leach analyst Margaret Whitfield said. It wasn't all that disappointing.

Throughout September, Whitfield said she had not seen many holiday toys on store shelves, and said that could mean retailers are waiting longer to present holiday merchandise. That could lead to a better fourth-quarter performance, she said.

Worldwide sales fell 8 percent for Mattel's Barbie and 4 percent for its Fisher-Price line, and rose 9 percent for Hot Wheels and 4 percent for American Girl.

After a bruising holiday season in 2008, toy companies are also making fewer and more affordable products, such as those that cost less than $30. Mattel's Barbie Fashionista doll is expected to be a hot seller this holiday.

Hasbro is due to report earnings on Monday.

Shares of Mattel, which moved its stock exchange listing to the Nasdaq last month, were up 12 cents at $19.70 in premarket trade on Thursday.

(Additional reporting by Nivedita Bhattacharjee in Bangalore; Editing by Steve Orlofsky)

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