Marvel Reports 2Q Earnings - Profits Up, Publishing Down

Marvel Entertainment Inc., said Tuesday overall second-quarter 2008 earnings increased based on a strong performance in the licensing segment and initial contributions from the film production segment.

Marvel reported that net sales increased to $156.9 million and net profit $46.7 million in 2Q 2008, as compared to $101.5 million in net sales and $29.1 million in net sales in the same period in 2007.

Marvel’s Chairman, Morton Handel, commented, “Revenue from Marvel’s film production segment commenced in the second quarter with the release of Iron Man and The Incredible Hulk. We’re very pleased with the success of these films which have generated $817 million in global box office receipts -- $571 million from Iron Man and $246 million from The Incredible Hulk -- with Iron Man still to open in Japan. Because of the timing of our distributors’ revenue reporting, our Q2 results did not reflect any revenue from the films’ box office performance. We did, however, record initial revenues in Q2 from the foreign pre-sales of both movies. In addition, the high level of media and consumer interest in these two films helped to drive strong results in our domestic and international licensing divisions in the period.

“With growing international sales to complement our already strong domestic licensing program and a focus on generating higher value from online and interactive activities, we believe Marvel is well positioned as we develop our pipeline of future self-produced feature films.

“During the second quarter we repurchased, at a discount to face value, $46.7 million of the Mezzanine notes outstanding under our film slate facility. The repurchase reflects our long-term confidence in the film slate, improves our ability to seek enhancements to the film slate structure, and significantly reduces our net interest expense on the facility going forward.”

Broken down within the company's divisions, Licensing saw net sales increase to $94.9 million in Q2 2008 from $65.6 million in Q2 2007. Marvels in-house Film Production segments recorded sales for the first time of $28.8 million, primarily from the theatrical component of the foreign presales for both Iron Man and The Incredible Hulk.

Marvel Publishing saw net sales decline 3%, however, to $31.8 million in Q2 2008 principally due to a decline in sales to the direct channel – i.e. direct market.

According to the company, the decline in sales principally reflects, "stronger sales in Q2 2007 generated from Civil War trade paperbacks and the high profile limited edition comic book series The Dark Tower and The Death of Captain America. Operating income declined 20% to $11.7 million in Q2 2008 and operating margin declined to 37% versus 45% in Q2 2007. These decreases principally reflect lower net sales volume of comic books, trade paperbacks and hard cover books, coupled with an increase in cost of goods sold driven by rising costs for talent and paper. Additionally, Publishing’s operating income was affected by additional overhead related to digital media investments in Q2 2008."

This is the second quarter in a row where Publishing has recorded a year-to-year decline in sales. In 1Q 2008, net sales declined by 4%, according to the company principally due to the timing of major publishing initiatives, again citing the lack of sales of titles like Civil War and The Death of Captain America. In their 1Q 2008 report, the company reported an operating margin of approximately 37% compared to approximately 42% in the prior year-period, and based on its planned slate of publishing initiatives, including the release of Secret Invasion in late 2Q 2008, expected its Publishing segment to return to "traditional margins for the full year 2008."

It's their citing of the rising costs of paper and talent in their current report 2Q 2008 that comic book fans might want to keep an eye on, as this could be a potential early indicator of a cover price increase.

There was no apparent changes to their film or animation production slate

Wall Street is not taking Marvel Earnings Report well. Shares of the company are down over 8% to around $32.40 dollars a share on Tuesday morning (as per 10:2am)

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