MARVEL RELEASES Q2 NUMBERS, SEES 11% SLIDE

[MattBrady]

Marvel today released its Q2 2005 numbers, seeing slides downward across the board, resulting in an overall drop of 11% in its profits from this time last year. The biggest losers for the company during the quarter, a decline in the licensing net sales (though for the year, 2005 is still outpacing 2004), a sharp decline in toy sales, largely due to decreased demand (last year at this time, Spider-Man 2 toys were still fueling the company’s toy segment), and a slight decline in publishing.

In total, Marvel earned $25.9 million in Q2 of 2005, translating to $0.24 cents per share, which is down from last year’s $29.1 million/$0.25 cents per share the year before. Analysists were predicting Marvel to come in at $0.27 cents per share.

Net sales for the company came in at $88.1 million, down compared to $155.5 million of a year ago, and the analysts'-predicted $96.2 million. In terms of per-segment net sales, licensing dropped from $47 million to $43.9 million (7%); toys dropped from $87 million to $23 million (74%); and publishing slid modestly from $21.6 million in Q2 of 2004 to $20.9 million in Q2 of 2005 (4%). The decreases are seen by some as being indicative of Marvel's volatile nature, performance wise - doing well (often very well) if a property clicks with audiences, and taking it on the chin as the heat from a hot property fades, and a replacement property isn't waiting in the wings to take the place of the first.

The company’s operating income for the period also saw a decrease, from $33.5 million to $29.2 million, though the bulk of that decrease was due to, as the company explained: “the impact of a $10 million, one-time charge related to the settlement of litigation with Stan Lee,” referring to Marvel’s settlement payment to Lee for his profit sharing in the Marvel films.

From Marvel’s release:

Marvel's Chairman, Morton Handel, commented, "Marvel's 2005 second quarter and first half operating performance is consistent with our previously announced outlook for the full year and reflects the continued high level of demand for consumer and media products based on our characters. Furthermore, we are very pleased with the success of the global consumer launch of our Fantastic Four character franchise, driven by the successful feature film and the related promotional and licensed product programs. Given the overall performance of the business, our strong cash flow generation and the Board's confidence in the Company's long-term outlook, Marvel has been active in its share repurchase activity over the past few months. We view such repurchases as the most attractive use of surplus cash within our business model."

Marvel also releases per-segment analyses of performance for the quarter.

Publishing:

Marvel's Publishing Segment net sales declined 4% from the year-ago period to $20.8 million. This year-over-year decrease in comic sales is mainly attributed to a timing difference in marketing events. Marvels' main marketing event for 2004 launched in May, while the main marketing event for 2005 will take place in the second half of 2005. Divisional operating income in Q2 2005 was $7.9 million, an operating margin of 38%, compared to an operating margin of 42% in the prior-year period. Excluding a $1.0 million one-time gain from the settlement of bankruptcy claims in Q2 2004, Marvel's publishing operating margin would have been 37%.

Licensing:

Licensing Segment net sales declined 7% from the year-ago period to $43.9 million in Q2 2005 primarily due to lower contributions from the joint venture (JV) with Sony for Spider-Man 2 movie merchandising, which continues to generate revenues a full year after the movie's release. Q2 2005 net licensing sales include approximately $7.1 million in gross sales recognized as a result of the consolidation of the JV, compared to $11.2 million in the year ago period. International licensing net sales, excluding JV activity, increased more than 53% year-over-year to $11.6 million in Q2 2005 as Marvel's international offices continued to leverage global marketing momentum.

Operating margins were 64% in Q2 2005 compared to 71% in the prior-year period due to a higher concentration of studio and JV revenues in the year-ago period, which do not incur an off-setting studio share expense.

Toys:

The transition in Marvel's Toy Segment net sales from Marvel-produced action figures and accessories based on the Lord of The Rings franchise and Spider-Man 2 movie toys in 2004 to lines produced by our master toy licensee in 2005, led to an expected decline in segment revenue of 73% to $23.4 million. Fantastic Four toy sales by Marvel's master toy licensee performed well in the period with year-to-date sales of approximately $41 million, in line with Marvel's projection of full-year Fantastic Four sales of $80 million. Spider-Man 2 movie toy sales were $1.3 million in Q2 2005 compared with $79.8 million in Q2 2004. Operating margins in the toy division increased to 56% in Q2 2005 from 29% in Q2 2004 due to the shift in product mix toward higher margin toy royalty and service fees.

Marvel also reported that is has completed its $100 million stock repurchase program, spending $159.3 million during Q2 of 2005 (there were no repurchases made during Q1 2005). As of June 30th, Marvel had $105.8 million cash and short-term investments.

As is common with Marvel’s quarterly reports, the company listed its upcoming film slate. No shockers were named in the report, though The Punisher 2 was listed as being targeted for 2006, and Namor for 2007. Other films on Marvel’s slate: X-Men 3, Spider-Man 3, Iron Man, Luke Cage, Deathlok, The Hulk 2 and Wolverine. Projects in development, as listed by Marvel: Ant-Man, Black Panther, Captain America, Killraven, Nick Fury, Silver Surfer, and Thor.

Marvel character animated direct-to-video projects in development through it’s partnership with Lions Gate to develop, produce and distribute original animated DVD features: Four projects in 2D/3D format are in development with the first release slated for 2006. Titles include: The Avengers 1, The Avengers 2, Iron Man and Dr. Strange.

Marvel character animated TV projects in development via a partnership with Antefilms Distribution to produce an original animated television series based on the Fantastic Four. Twenty-six, 30-minute 2D/3D animated episodes are planned with initial TV airings in 2006.

Marvel still lists Brother Voodoo as a live action television project in development. Unnamed (but recently reported to be moving forward for Spike TV) in the report, a live action series based on Marvel’s Blade film franchise.

For 2005, Marvel maintained that it will see somewhere between $1.07 to $1.12 per share profit (2004 saw $1.10), but pulled its net income prediction down slightly, from a range of $120 to $126 million to $117 to $126 million, due to higher than anticipated legal expenses.

[Aaron]

Number of times the word "decline" or "declined" appeared in the article: 6

Number of times the word "increase" or "increased" appeared in the article: 2

Hmm...

[ZampDiSata]

What's the difference between a film being "on Marvel's slate" and "projects in development"?

[the_sentry]

Eh, Q2 always sucks ass. Like it said Marvel had Spider-Man 2 to really drive it last year. Fantastic Four is doing okay, just not Spider-Man 2 okay. But a Fantastic Four toon! Good news.

[the_sentry]

Originally posted by ZampDiSata
What's the difference between a film being "on Marvel's slate" and "projects in development"?

Marvel now has its own film division. So movies on Marvel's slate are being made "in house" while other projects are bing made by an outside film company like Sony or Fox.

[HeX111]

Originally posted by ZampDiSata
What's the difference between a film being "on Marvel's slate" and "projects in development"?

Projects in development: Projects that have been lisenced but are not yet in any level of production

On Marvel's slate: Projects in some level of production

[HeX111]

Originally posted by MattBrady
As is common with Marvel’s quarterly reports, the company listed its upcoming film slate. No shockers were named in the report, though The Punisher 2 was listed as being targeted for 2006, and Namor for 2007. Other films on Marvel’s slate: X-Men 3, Spider-Man 3, Iron Man, Luke Cage, Deathlok, The Hulk 2 and Wolverine. Projects in development, as listed by Marvel: Ant-Man, Black Panther, Captain America, Killraven, Nick Fury, Silver Surfer, and Thor.

suprised that Ghost Rider isn't listed since it is presently filming

[csGuy]

they also didnt mention the Magneto movie

[BrotherI]

Not bad, not bad at all. This could have been worse! Namor....should be interesting.

[Murphix]

Originally posted by MattBrady
As is common with Marvel’s quarterly reports, the company listed its upcoming film slate. No shockers were named in the report, though The Punisher 2 was listed as being targeted for 2006, and Namor for 2007. Other films on Marvel’s slate: X-Men 3, Spider-Man 3, Iron Man, Luke Cage, Deathlok, The Hulk 2 and Wolverine. Projects in development, as listed by Marvel: Ant-Man, Black Panther, Captain America, Killraven, Nick Fury, Silver Surfer, and Thor.

Does anyone else remember Avi Arad talking about a Dr. Strange picture? What happened to that? Perhaps it was the direct to DVD cartoons that he let slip instead?

[ParisCub]

Considering that Q2 results are generally bad for most companies... I'd say Marvel did good this quarter.

[ZampDiSata]

Originally posted by the_sentry
Marvel now has its own film division. So movies on Marvel's slate are being made "in house" while other projects are bing made by an outside film company like Sony or Fox.

-----------------

Originally posted by HeX111
Projects in development: Projects that have been lisenced but are not yet in any level of production

On Marvel's slate: Projects in some level of production

HRRR??? Hulk confused...

[Rawle Austin]

Marvel needs a couple more "X-Men 2" successes to really boost its revenue streams.

Meaning, think carefully when developing movie concepts and stay true to the source material.

Growler

[Volunteer]

Originally posted by the_sentry
Eh, Q2 always sucks ass. Like it said Marvel had Spider-Man 2 to really drive it last year. Fantastic Four is doing okay, just not Spider-Man 2 okay. But a Fantastic Four toon! Good news.

That's why they compare against the same quarter from last year. And they're doing worse than at the same time last year.

Not surprising given the company's dependence on something other than their core product (licensing). It's not a sustainable business model.

Volunteer

[Robert W. Boyd]

ParisClub wrote "Considering that Q2 results are generally bad for most companies... I'd say Marvel did good this quarter."

I thought these results were in comparison with Marvel's 2004 Q2 results. In which case, they're comparing two second quarters and finding this one wanting.

[Michael P]

To be expected, I suppose, without the mega-revenue from Spidey 2.

How'd the stock price react?

[Kerouac]

Originally posted by Rawle Austin
Marvel needs a couple more "X-Men 2" successes to really boost its revenue streams.

Meaning, think carefully when developing movie concepts and stay true to the source material.

Growler

The problem is that Marvel really only has two blockbuster franchises: Spider-Man and X-Men. If done well, other characters/teams could be successful movies, but the fact remains that nothing is going to tear up the box office like those two. As well, I think Marvel's track record of faithfully translating their characters to the big screen is less than stellar, so that's not a good sign.

There was really nowhere for Marvel to go Q2 '05 but down, given the success last year of Spider-Man 2. FF's surprising profitiability lessened that to some extent, but again, it's no Spidey.

Matt

[Prof OddPassion]

Originally posted by Aaron
Number of times the word "decline" or "declined" appeared in the article: 6

Number of times the word "increase" or "increased" appeared in the article: 2

Hmm...

Content analysis is useless.

[New Alfonso]

Originally posted by Prof OddPassion
Content analysis is useless.

Isn't the entire article an analysis of the content Marvel released?

[Joe Henderson]

Originally posted by ZampDiSata
-----------------


HRRR??? Hulk confused...

The second one is correct.

[cactusmaac]

Originally posted by Volunteer
That's why they compare against the same quarter from last year. And they're doing worse than at the same time last year.

Not surprising given the company's dependence on something other than their core product (licensing). It's not a sustainable business model.

Volunteer

It is sustainable.

But it just doesn't give the steadily increasing numbers that Wall Street loves.

[lex luthor]

Originally posted by Michael P
To be expected, I suppose, without the mega-revenue from Spidey 2.

How'd the stock price react?

checking out Yahoo: http://finance.yahoo.com/q?s=mvl&d=t, the stock price is at $19.86, down $1.39, and down from its high of about $22 when the FF movie was released.

[lex luthor]

Originally posted by MattBrady
From Marvel’s release:

Licensing Segment net sales declined 7% from the year-ago period to $43.9 million in Q2 2005 primarily due to lower contributions from the joint venture (JV) with Sony for Spider-Man 2 movie merchandising, which continues to generate revenues a full year after the movie's release. Q2 2005 net licensing sales include approximately $7.1 million in gross sales recognized as a result of the consolidation of the JV, compared to $11.2 million in the year ago period. International licensing net sales, excluding JV activity, increased more than 53% year-over-year to $11.6 million in Q2 2005 as Marvel's international offices continued to leverage global marketing momentum.

I guess Q3 is when we find out if "Thing Hands" are profitable.

[lokifer]

Shhh! I'm speculating on "Thing Hands".

[jmarshall]

Originally posted by lokifer
Shhh! I'm speculating on "Thing Hands".

Screw that! The Thing Feet are even cooler!