Mattel Inc.'s (MAT) third-quarter earnings fell 3.5% amid weak international Barbie sales, a lack of entertainment-inspired toys and unfavorable foreign-exchange rates. But the world's largest toy maker has cut inventories and tightly managed its balance sheet, offering hope that it will benefit in the fourth quarter as retailers continue to stock their own shelves for the holidays.

Shares, which have outpaced broader markets in expectation of decent results, fell 0.4% to $19.50 in premarket trading. The stock is up 35% the past year.

Sales slid 8% as its major business unit was hurt by weak international sales of Barbie and sales of toys tied to movies and television programs. Weakness in that category, which fell 15%, was mostly because last year's results were boosted by toys related to movies including "The Dark Knight" and "Kung Fu Panda." U.S. Barbie sales were flat.

Fisher Price sales slid 4% and American Girl fell 4%.

"As expected, revenues continue to be challenging this year due to the overall economic environment" said Chairman and Chief Executive Robert Eckert. "That said, we are continuing to make strong progress on reducing costs, rebuilding margins and generating strong cash flow."

Mattel has recently succeeded in cutting costs, raising prices and controlling expenses during economic turmoil, swinging to a profit in the second quarter even as sales have slumped.

Mattel reported third-quarter earnings of $229.8 million, or 63 cents a share, down from $238.1 million, or 65 cents, a year earlier. Revenue fell to $1.79 billion.

Analysts polled by Thomson Reuters had forecast earnings of 63 cents on $1.78 billion in revenue.

Gross margin rose to 51.3% from 46.2% amid the cost cuts. Inventory declined 19.3% on the 8% sales decrease, and accounts receivable fell 15.3%, indicating solid working capital management, Wells Fargo analyst Timothy Conder said in a note to clients.

In addition, it appears concerns that price-focused promotions by toy retailers, especially Wal-Mart Stores Inc. (WMT) aren't hurting Mattel's results.

Mattel on Wednesday said it had agreed to settle a class-action lawsuit related to a 2007 recall of millions of toys that contained lead. The company didn't disclose the amount of the settlement, but said it had previously recorded charges to reserve for the litigation. Mattel said the final settlement won't be material to the company's operating results.

-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd@dowjones.com

(Nathan Becker contributed to this story.)