?

Log in

No account? Create an account
Oct. 28th, 2004 @ 09:45 am Marvel Quarterly Report
Your Name Here Bomb
dangalindo:
Publishing:

Publishing net sales rose a modest 15% in Q3 of 2004 compared to 2003, $22.6 million versus $19.6 million; keeping the year to date results for 2004 ahead of those for 2003 by nearly $10 million - $63.9 million in 2004 versus $54.3 million in 2003.

Marvel attributed the growth in publishing to “strength in core comic sales, advertising and custom projects. In total, there was an approximate 5% increase in total circulation to 12.4 million units compared to the prior year period, reflecting success in the Company's title management strategy. Excluding one-time gains of $1.0 million related to pre-bankruptcy claims, operating income in Q3 2004 would have been $8.4 million with an operating margin of 37%, compared to an operating margin of 36% in the prior-year period.”

Operating income rose from $7.0 million in Q3 of 2003 to $9.4 million for the same time period in 2004. Likewise, the Publishing division’s year to date operating income rose from $18.3 million for the first nine months of 2003 to $25.7 million for the same time period of 2004.



MARVEL REPORTS Q3 2004 NUMBERS
Marvel today reported its third quarter results for 2004, stating that net sales rose 60% to $135.2 million compared with the same time period last year ($84.5 million). Operating income was also up 44% due to growth in licensing income from Spider-Man and Marvel Studios. However, due to a change in tax structure compared to 2003, Marvel’s Q3 net income of $34.4 million was lower than last year’s Q3 net income of $63.2 million, when the company was under a different tax structure.

In a release from Marvel, President and CEO Allen Lipson said: "Our robust Q3 and year-to-date operating results continue to benefit from the expanding brand awareness of the Marvel Universe. The recent agreement with Antefilms for animated Fantastic Four programming is part of Marvel's continuing strategy to support brands through multiple exposures in feature films, animated TV series, direct-to-video projects, video games, and other merchandising opportunities. This strategy is focused on developing a recurring stream of entertainment exposure fueling sales of Marvel-branded products."

Breaking things down by division:

Publishing:

Publishing net sales rose a modest 15% in Q3 of 2004 compared to 2003, $22.6 million versus $19.6 million; keeping the year to date results for 2004 ahead of those for 2003 by nearly $10 million - $63.9 million in 2004 versus $54.3 million in 2003.

Marvel attributed the growth in publishing to “strength in core comic sales, advertising and custom projects. In total, there was an approximate 5% increase in total circulation to 12.4 million units compared to the prior year period, reflecting success in the Company's title management strategy. Excluding one-time gains of $1.0 million related to pre-bankruptcy claims, operating income in Q3 2004 would have been $8.4 million with an operating margin of 37%, compared to an operating margin of 36% in the prior-year period.”

Operating income rose from $7.0 million in Q3 of 2003 to $9.4 million for the same time period in 2004. Likewise, the Publishing division’s year to date operating income rose from $18.3 million for the first nine months of 2003 to $25.7 million for the same time period of 2004.

Licensing:

As always, the financial engine that drives Marvel, and as Newsarama has stated numerous times, it is to be expected that licensing brings in more revenue for Marvel (or for any comic book publisher for that matter) than publishing, as licenses for single characters or groups of characters can be sold multiple times for a wide variety of products and dollar amounts.

Net sales in licensing rose 66% from Q3 2003’s $41.6 million to $69.2 million. The increase carried through to the year to date totals, with 2004 seeing $168.9 million net sales in licensing compared to 2003’s $148.3 million. Of note in the licensing results for Q3 2004 is the fact that royalties paid to Toy Biz were down, although, as Marvel explains, this was expected.

From Marvel’s release: “Q3 2004 net licensing sales include approximately $28.3 million in gross sales recognized as a result of the consolidation of the Spider-Man JV [Joint Venture - Mvl's deal with Sony], compared to the year ago period in which Marvel's portion of the JV results of $1.5 million were not consolidated but were booked as equity in net income of the joint venture. Fees generated from our studio partners increased significantly compared to the prior-year period as Marvel received additional income for the Spider-Man 2 theatrical release. In total, Marvel Studios received fees associated with six separate character properties in the Q3 2004 period.

International licensing net sales, excluding JV activity, increased more than 75% year-over-year to $7.1 million in Q3 2004 as Marvel's international offices continued to leverage global marketing momentum. As expected, there was a shift in sales from the Hulk toys to Spider-Man movie toys that resulted in toy royalty and service fees from Toy Biz Worldwide, Ltd. changing from $19.6 million in Q3 2003 to $5.0 million in Q3 2004.

“Total licensing operating expenses increased to $16.0 million in Q3 2004 compared to $13.5 million in the prior-year period as the higher costs of operating expanded global operations outweighed a lower studio share expense. Operating margins were 77% in Q3 2004 and 73% in Q3 2003. Accounting for Sony's minority interest in the Spider-Man joint venture as royalty expense, licensing operating income in the quarter would have been $46.3 million and operating margins for the licensing segment would have been 67% compared to 73% in Q3 2003.”

Toys

Despite the downturn in royalties paid to Toy Biz, Marvel’s toy division saw increased net sales in Q3 2004, up 86% from the same time in 2003 to $43.4 million, thanks mostly to Spider-Man 2 related toys. The increase though, may not be as dramatic as it seems as 2003 was a year without a strong (read: Spider-Man) toy presence for the company. While Hulk toys performed well, they were no match for the juggernaut that Spider-Man toys had been, and apparently are again in the marketplace.

From Marvel’s release: “Spider-Man movie toy sales were $36.6 million in Q3 2004 compared with sales of $5.9 million in Q3 2003. Due to a planned increase in advertising and promotions heading into the competitive holiday season, operating margins in the toy segment declined year-over-year from 35% in Q3 2003 to 18% in Q3 2004. Through September 30, 2004, sales of Spider-Man movie toys were $161.2 million, in-line with Marvel's previous guidance of $160 million to $170 million for the year.”

Marvel also noted that corporate overhead increased compared to 2003 ($8.1 million in 2004 versus $2.4 million in 2003) “due to higher reserves and compensation for new and existing employees.”

Marvel also listed it’s studio projects through 2007, both in film and television:

Marvel Character Feature Film Line-Up For 2005

Film/Character Studio/Distributor Status
----------------------------------------------------------------------
Elektra New Regency/ Fox Filming completed, Jan. 14, 2005 release (1)
----------------------------------------------------------------------
Fantastic Four Fox Filming started, July 1, 2005 release
----------------------------------------------------------------------

Marvel Character Feature Film Line-Up For 2006

Character/Property Studio/Distributor Status
----------------------------------------------------------------------
X-Men 3 Fox May 5, 2006 release
----------------------------------------------------------------------
Iron Man New Line Cinema Script, Slated for 2006 (1)
----------------------------------------------------------------------
Ghost Rider Sony Script, Director, Pre-production, Slated for 2006
----------------------------------------------------------------------
Luke Cage Sony/Columbia Script, Director, Slated for 2006 (1)
----------------------------------------------------------------------
The Punisher 2 Lions Gate Writer, Director, Slated for 2006 (1)
----------------------------------------------------------------------
Deathlok Paramount Script, Director, Slated for 2006 (1)
----------------------------------------------------------------------

Marvel Character Feature Film Line-Up For 2007

Character/Property Studio/Distributor Status

Spider-Man 3 Sony/Columbia Director, May 4, 2007 release
----------------------------------------------------------------------
Namor Universal Pictures Script, Slated for 2007 (1)
----------------------------------------------------------------------
The Hulk 2 Universal Pictures Development, Slated for 2007 (1)
----------------------------------------------------------------------
Wolverine Fox Development, Slated for 2007 (1)
----------------------------------------------------------------------

Marvel Character Feature Film Projects in Development

Ant-Man, Black Panther, Captain America, Nick Fury, Silver Surfer,
Thor (1)
----------------------------------------------------------------------

Marvel Character Animated Direct-to-Video Projects in Development
----------------------------------------------------------------------
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. Characters include: The Avengers 1, The Avengers 2, Iron Man and The Hulk.
----------------------------------------------------------------------

Marvel Character Animated TV Projects in Development
----------------------------------------------------------------------
Partnership with Antefilms Distribution to produce an original animated television series based on the Fantastic Four. 26, thirty- minute 2D/3D animated episodes are planned with initial TV airings in 2006 (1).
----------------------------------------------------------------------

Marvel Character Live Action TV Projects in Development
----------------------------------------------------------------------
Blade and Brother Voodoo are two Marvel characters that are in development.
----------------------------------------------------------------------

(1) Represents a change from the previously supplied schedule

Marvel has also upped its financial guidance for the remainder of 2004 and 2005, again, of note is Marvel stating that it expects to see a decline in toy revenue in 2004, and a significant decline in toy sales in 2005, which will be partly made up for by a shift to toy licensing, that is, selling the licenses for its characters to other toy manufacturers, other than Toy Biz.
From Marvel’s report:

Updated FY 2004 and Q4 2004 financial guidance: Reflecting Marvel's stronger than anticipated Q3 and year-to-date performance, the Company has raised its guidance for the full year 2004, as noted in the above table. Primary drivers for Q4 2004 are expected to include Marvel's share of royalties (beyond previously paid advances) derived from Spider-Man 2 box office receipts and continued strength in Spider-Man 2 movie and international licensing. Net sales derived from the licensing segment for the fourth quarter are expected to surpass 50% of total net sales with operating margins of roughly 70% - 75%. Due to a seasonal ramp up in advertising in the fourth quarter, coupled with low expectations for toy sales, Marvel expects the Toy Biz division will post a slight operating loss in Q4 2004. Marvel also expects to take a $4.0 million one-time charge in Q4 2004 related to the early termination of its existing lease for offices in New York City and moving to new, lower cost corporate offices, also in New York City, in early 2005.

2005 Guidance and Drivers: Marvel is initiating 2005 financial guidance ranges. The licensing division is expected to generate over 60% of total sales for the year with operating margins ranging between 60% - 70% with some planned advertising for the Fantastic Four brand included in the licensing division. Marvel anticipates a significant decline in toy sales in 2005, the bottom-line impact of which it expects will be largely offset by a shift to toy licensing income bearing substantially higher margins. The following are expected to be key factors for Marvel's 2005 financial performance and are reflected in the high end of the Company's financial guidance range.

-- Ongoing contributions from the Spider-Man 2 feature film (international box office receipts and DVD share).

-- Contributions from the syndication of the first Spider-Man feature film as well as an advance for the second Spider-Man movie sequel expected to release in 2007.

-- Approximately $20 million in sales derived from the Spider-Man JV.

-- The Fantastic Four movie release and related licensing, as well as licensing associated with other entertainment projects slated for 2005 or thereafter.

-- Royalties and service fee income associated with an estimated $80 million of wholesale sales of Fantastic Four toys through our master toy licensee.

-- Domestic License renewals, including category consolidation efforts, which should exceed $60 million.

-- Domestic licensing overages of $35 million (compared to $37 million in 2004 and $44 million in 2003).

-- International licensing activities at least 10% above the $25 million planned for 2004.

-- Modest top line and bottom line growth from the publishing division.

-- Benefit of interest income versus interest expense incurred in 2004, coupled with a lower average fully diluted share count, reflecting stock repurchases completed through October 26, 2004.

For Marvel’s report, click here.

During a conference call with investors this morning, several topics were covered:

Marvel expects to end 2004 with $170 million in cash.

Avi Arad deined that Spider-Man 3 will be the final Spider-Man movie, saying that Spider-Man is forever.

The Elektra franchise will continue past the intial movie.

Activision will release a Fantastic Four game a week before the film's release next summer. Marvel will team with Burger King for an FF promotion near the film's release date.

Arad said that Hulk 2 will be happier and more fun than the original movie.

Arad also said that, with the exclusion of The Punisher movie franchise, all future Marvel films will be PG or PG-13.

Also mentioned as possible films by Arad was Killraven, which was described as Gladiator in the year 3000.

Lipson said that Marvel is planning on expanding its publishing range both in bookstores and mass markets.

Alan Fine said that Marvel has taken competition from Batman toys into consideration in regards to its projected revenues for 2005.

Revenues from The Punisher DVD are expected to impact Marvel's numbers in 2005.

Avi Arad said that the final number of DVDs of Spider-Man 2 released is up to Sony, but he expects it to be huge, given the over $100 million marketing effort going into the DVD's release.

Forthcoming sub-brands of Marvel licenses will include "Marvel Retor" using art from and reminiscent of '60s and '70s Marvel comics, and "Marvel Babies" which will be aimed at infant products.

Fantastic Four toys will begin to hit stores in early May of 2005.