UPDATE 1-RC2 Q3 results top Street view

* Q3 EPS 66 cents vs est 58 cents

* Q3 sales $126.5 mln vs est $131.0 mln

* Sees challenging holiday season in 2009

* Sees FY EPS $1.30-$1.40

Oct 20 (Reuters) - Toymaker RC2 Corp (RCRC.O) posted a bigger-than-expected quarterly profit, helped by lower costs and improved international margins due to favorable currency fluctuations.

For the latest third quarter, the company earned $13.6 million, or 66 cents a share, compared with $11.1 million, or 64 cents a share, last year.

Revenue fell 5 percent to $126.5 million.

Analysts on average were looking for a profit of 58 cents a share, before items, on revenue of $131.0 million, according to Thomson Reuters I/B/E/S.

The company, whose categories of toys includes Thomas & Friends wooden railway, Bob the builder and Johnny Lightning, has reduced expenses and increased prices to deal with the challenging retail environment for toys.

The company, which sees a challenging holiday season in 2009, forecast full year earnings of $1.30 to $1.40 a share. Shares of the Oak Brook, Illinois-based company closed at $14.60 Tuesday on Nasdaq. (Reporting by Vidya Lakshmi in Bangalore; Editing by Pradeep Kurup)