Marvel Reports Q2 Net Sales of $155.5 Million, Operating Income of $63.6 Million and EPS of $0.25
Thursday July 29, 6:30 am ET
........this is just for comparing Q2 to Q3.......
NEW YORK--(BUSINESS WIRE)--July 29, 2004-- Marvel Enterprises, Inc. (NYSE: MVL - News), a global entertainment licensing company, today reported financial results for its second quarter ended June 30, 2004 that were in excess of previously supplied guidance ranges, and initiated financial guidance for the third quarter of 2004. Marvel's Q2 2004 operating income was significantly higher than operating income for the prior year period, while net income and EPS were affected by a more normalized, but significantly higher effective tax rate.
Net sales for the second quarter of 2004 grew to $155.5 million compared with Q2 2003 net sales of $90.0 million, fueled by the toy segment. Q2 2004 operating income increased approximately 47% to $63.6 million compared to the prior-year period also as a result of toy segment performance. A significantly higher mix of toy segment sales, as a percentage of total sales, led to a decline in consolidated operating margins from 48% in Q2 2003 to 41% in Q2 2004. Despite an increase in pre-tax income, an effective tax rate of 32% in Q2 2004 (compared to 16% in Q2 2003) led to a decline in diluted net income per share attributable to common stock to $0.25 in Q2 2004 from $0.28 in 2Q 2003.
In part, the increase in operating income resulted from the consolidation, since the beginning of Q2 2004, of the results of Spider-Man Merchandising LP, which is Marvel's licensing joint venture with Sony. Consolidation of that entity's results is required by Generally Accepted Accounting Principles (GAAP) as a result of changes in the terms of that joint venture. As a result of consolidation of the Spider-Man joint venture, Sony's share of the joint venture's results is now accounted for as a minority interest expense which affects net income but not operating income. Had Marvel accounted for Sony's $3.8 million minority interest in the joint venture as an expense, consolidated operating income would have been $59.8 million.
Marvel's President and CEO, Allen Lipson, commented, "The continued success of entertainment projects such as films, video games, and comic books based on our portfolio of characters has led to enhanced brand awareness for the Marvel Universe of characters, which in turn has led to increased sales. The recent release of Spider-Man 2 has broken box office records and has generated more than $600 million in worldwide box office receipts to-date, and the DVD is scheduled to ship in November. In addition, consumer products based on the movie are currently among the strongest performing brands at retail, further cementing both Marvel and Spider-Man as flagship brands with retail partners.
"We continue to initiate new revenue streams to raise the visibility of the Marvel brand, an example of which is our recent agreement with Lions Gate to develop, produce and distribute original animated DVD features based on Marvel characters. The relationship, which has very attractive economics for Marvel, will kick-off with the launch of The Avengers DVD in 2006."
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Marvel Enterprises, Inc.
Segment Net Sales/Operating income
(dollars in thousands)
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Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
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Licensing: Net Sales $49,537 $56,750 $99,640 $106,651
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Operating Income 35,566 41,238 74,050 90,065
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Publishing: Net Sales 21,609 19,535 41,253 34,747
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Operating Income 8,969 6,184 16,279 11,259
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Toys: Net Sales 84,321 13,681 136,900 35,944
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Operating Income 23,229 2,559 38,852 8,553
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Corporate Overhead: (4,152) (6,795) (8,268) (11,783)
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TOTAL NET SALES 155,467 89,966 277,793 177,342
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TOTAL OPERATING INCOME 63,612 43,186 120,913 98,094
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Segment Review:
Licensing Segment net sales in Q2 2004 decreased to $49.5 million from $56.8 million in Q2 2003 as revenues from a variety of licensed products only partially offset expected declines in the toy license category. International licensing net sales increased more than 75% year-over-year to $7.6 million in Q2 2004 as Marvel's international offices continued to support global marketing momentum. Q2 2004 net licensing sales include approximately $11.2 million in net sales recognized due to the consolidation of the revenues from the Spider-Man joint venture for the first time. Overages were approximately $8.5 million in this quarter, compared to $8.0 million in the prior-year period, reflecting the continued strong performance of Marvel-branded consumer products at retail. Toy royalty and service fees from Toy Biz Worldwide, Ltd. declined to approximately $2.5 million in Q2 2004 from approximately $21.8 million in Q2 2003 as sales of The Hulk toy line diminished as expected when compared to the prior year level which coincided with the film's June 2003 release. The table below reflects these trends.
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(in thousands) Three Months Six Months
Ended Ended
6/30/04 6/30/03 6/30/04 6/30/03
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Apparel and accessories $20,470 $12,800 $40,166 $17,673
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Entertainment (including studios,
themed attractions and electronic
games) 10,786 9,373 16,230 37,280
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Toy Biz Worldwide Ltd.:
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- Toy Royalties 1,837 9,757 3,906 15,472
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- Toy Service Fees 706 12,031 1,880 18,729
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Other Toy Royalties 8,996 5,395 15,344 8,593
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Other (Domestics, food and other) 6,742 7,394 22,114 8,904
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Total $49,537 $56,750 $99,640 $106,651
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Total licensing operating expenses declined to $13.9 million in Q2 2004 compared to $17.7 million in the prior-year period, predominantly due to lower revenue sharing with studio partners, which decreased to $7.8 million in Q2 2004 versus $13.0 million in the year-ago period. The reduction in the studio partner share expense was partially offset by an increase of $1.5 million in total salaries, foreign commissions and overhead compared to the year-ago period. This is primarily related to newly-opened international offices in the United Kingdom and Japan. Operating margins were 71.8% in Q2 2004 and 72.5% in Q2 2003. If Marvel had accounted for Sony's minority interest in the Spider-Man joint venture as an expense, licensing operating income in the quarter would have been $31.8 million and operating margins for the licensing segment would have been 64.2%.
Marvel's Publishing Segment net sales rose due to increased strength in the direct and mass markets primarily driven by a higher title count and greater overall demand for Marvel brand products. Approximately 65 comic titles per month were published in Q2 2004 with an average circulation of over 53,800 units versus 50 titles per month at an average circulation of 64,000 units in the 2003 period. In total, there was an approximate 10% increase in circulation to 3.5 million units compared to the prior year period, reflecting success in the Company's title management strategy. Operating margins in the segment increased to 41.6% in Q2 2004 compared to operating margins of 31.6% in the prior-year period. The year-over-year margin increase reflects higher gross margins in the core comic business due to operating efficiencies, coupled with a lower cost structure due to reductions achieved in distribution costs compared to the prior-year period. Publishing segment margins also benefited from a one-time gain of $1.0 million in other income related to settlements of old bankruptcy claims.
Marvel's Toy Segment net sales increased from the prior-year period due to strong shipments of action figures and accessories based on the Spider-Man 2 movie as retailers placed products on shelves ahead of the film's June 30 release. Spider-Man movie toy sales were $79.8 million in Q2 2004 compared with sales of $4.1 million in Q2 2003. Operating margins in the toy segment improved nearly 50% year-over-year from 18.5% in Q2 2003 to 27.5% in Q2 2004 due to economies of scale created by the higher sales volumes. The company expects toy segment operating margins to decline in the second half of 2004 due to a planned increase in advertising promotions heading into the competitive holiday season on lower projected sales.
Strong Balance Sheet:
Following the redemption on June 15, 2004 of all of the Company's outstanding 12% Senior Notes, Marvel had $177 million in cash, certificates of deposit, tax-exempt notes and commercial paper at June 30, 2004. Excluding any potential share repurchases under its recently authorized $100 million common stock repurchase plan, Marvel expects cash levels at December 31, 2004 to exceed $200 million. The Company has fully utilized its federal NOL carry-forwards and now pays federal taxes as has been previously noted.
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Marvel Character Feature Film Line-Up For 2004
(Release dates are controlled by Studio partners)
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Film/Character Studio/Distributor Targeted Release Date
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The Punisher Lions Gate Released April 16, 2004
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Spider-Man 2 Sony/Columbia Released June 30, 2004
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Blade: Trinity New Line Cinema December 10, 2004
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Marvel Character Feature Film Line-Up For 2005
(Release timing is controlled by Studio partners)
----------------------------------------------------------------------
Film/Character Studio/Distributor Status
----------------------------------------------------------------------
Elektra New Regency / Fox Script, Director, Filming started
May '04, Jan. 15, 2005 release
(1)
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Fantastic Four Fox Script, Director, Filming starts
August '04, July 1, 2005 release
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Iron Man New Line Cinema Script, Slated for November 2005
or Summer 2006 (1)
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Luke Cage Sony/Columbia Script, Director
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Man-Thing Lions Gate/Fierce TBD (1)
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Marvel Character Entertainment Projects in Development
For 2006 & Beyond
(Development and release timing is controlled by Studio partners)
----------------------------------------------------------------------
Film/Character Studio/Distributor Status
----------------------------------------------------------------------
The Avengers Lions Gate Slated for Q1 2006 release
(animated DVD)
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X-Men 3 Fox May 3, 2006 release (1)
----------------------------------------------------------------------
Namor Universal Pictures Script, Slated for Summer 2006
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Ghost Rider Sony Script, Director, Pre-production,
Summer 2006
----------------------------------------------------------------------
Black Widow Lions Gate Writer, Director, Slated for 2006
release
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The Punisher 2 Lions Gate Writer, Director (1)
----------------------------------------------------------------------
The Hulk 2 Universal Pictures Development (1)
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Deathlok Paramount Script
----------------------------------------------------------------------
Spider-Man 3 Sony/Columbia Director, May 4, 2007 release
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Dr. Strange Dimension Contract
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Iron Fist Lions Gate Contract
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Silver Surfer Fox Contract, Development (1)
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Ant-Man TBD (1)
----------------------------------------------------------------------
Black Panther TBD
----------------------------------------------------------------------
Captain America TBD
----------------------------------------------------------------------
Nick Fury TBD
----------------------------------------------------------------------
Thor TBD
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(1) Represents a change from the previously supplied schedule
Financial Guidance:
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Marvel Enterprises, Inc.
----------------------------------------------------------------------
Initial Q3 3Q
2004 2003
(in millions - except per share amounts) Guidance Results
----------------------------------------------------------------------
Net sales $97 - $102 $84.5
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Operating income $38 - $43 $43.0
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Net income (1) (5) $23 - $26 $63.1
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EPS attributable to common stock (1)(2)(4)(5) $0.20 - $0.23 $0.57
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Weighted average diluted common shares (4) 115.5 111.3
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Effective tax rate 37% 16%
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Marvel Enterprises, Inc.
----------------------------------------------------------------------
Updated Previous
(in millions - except per share 2004 2004 2003
amounts) Guidance Guidance(3) Results
----------------------------------------------------------------------
Net sales $448 - $468 $448 - $468 $348
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Operating income $195 - $205 $195 - $205 $167
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Net income (1) (5) $105 - $111 $102 - $108 $152
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EPS attributable to common stock
(1) (2) (4) (5) $0.92 - $0.97 $0.89 - $0.94 $1.34
----------------------------------------------------------------------
Weighted average diluted common
shares (4) 115.1 115.1 113.4
----------------------------------------------------------------------
Effective tax rate 37% 41% -1%
----------------------------------------------------------------------
(1) 2003 Net income and EPS attributable to common stock includes a
$31.5 million ($0.29 per diluted share) one-time, non-cash benefit
from the valuation of deferred tax assets (principally net
operating loss (NOL) carry-forwards).
(2) 2003 EPS attributable to common stock is net of approximately $1.2
million in preferred stock dividends.
(3) Previous 2004 guidance ranges were provided in the Company's May
4, 2004 release.
(4) 2003 EPS and shares outstanding data have been adjusted for the
March 2004 3-for-2 stock split.
(5) 2004 net income and EPS attributable to common stock include
one-time charges of approximately $12 million associated with the
early debt redemption.
Updated FY 2004 financial guidance: Marvel continues to expect that the primary drivers for the second half of 2004 will include Spider-Man consumer product merchandise, increased penetration in international licensing and the on-going renewal or replacement, on improved terms, of existing licensing contracts. Marvel has revised its forecast for 2004 Spider-Man movie toy sales to $160-$170 million, from $175-$200 million, reflecting a weaker than expected retail environment. The new forecast implies toy sales of $35-45 million in the second half of 2004 (which includes shipments related to the holiday selling season). Marvel is comfortable with its revised 2004 Spider-Man toy forecast given sell-through trends which are well ahead of Spider-Man 1 and The Hulk sales trends, as well as expected promotional support from the November release of the Spider-Man 2 movie on DVD and Marvel's planned increases in toy advertising in the second half of 2004. Marvel expects that strength in its licensing division results in the second half of 2004 will largely offset the projected decrease in contribution from the Company's toy division. The guidance ranges for fiscal 2004 net income and EPS have been raised to reflect the change in the expected fiscal 2004 effective tax rate to 37% from 41%.
Second-half results should also benefit from the receipt of Marvel's share of royalties (beyond previously paid advances) derived from Spider-Man 2 box office receipts. For the year, operating margins are expected to fall in a range of 40% - 45% with margins skewing toward the higher end of this range in the fourth quarter of 2004. Net sales derived from the licensing segment for the full year are expected to approximate 40% - 50% of total net sales with operating margins ranging from 70% to 75%.
Q3 2004 financial guidance: Licensing and publishing revenues should approximate levels achieved in the second quarter. Marvel anticipates that total revenues for Q3 2004 will be below levels achieved in the first and second quarters of 2004 as retail orders of Spider-Man 2 movie toys decrease. Operating margins are expected to increase slightly versus the second quarter of 2004 due to a higher percentage of revenues derived from the licensing segment, which has the highest margins of Marvel's three segments.
2005 Drivers: While it is premature for Marvel to provide formal 2005 guidance, the company believes the following factors will be the key drivers for its 2005 performance:
Ongoing contributions from the Spider-Man 2 feature film and related movie licensing
The Fantastic Four movie release and the licensing associated with other 2005 theatrical releases noted in the table above
Continued expansion of international licensing activities
Domestic Licensing initiatives - Category Consolidation and retailer exclusives
Marvel cautions investors that inherent variability in the timing of license opportunities and entertainment events, the timing of their revenue recognition, and their relative success contributes to sequential and year-over-year variability in its interim financial results and could have a material impact on quarterly results as well as Marvel's ability to achieve the financial performance included in its financial guidance. |
