Marvel’s Earnings Slip

Marvel Entertainment Inc. (MVL - Analyst Report), a character-based entertainment company engaged in the licensing, publishing and film production businesses, recently reported third-quarter 2009 results.

The quarterly earnings of 26 cents a share bettered the Zacks Consensus Estimate of 24 cents but fell sharply by 59.4% from 64 cents delivered in the prior-year quarter. Total revenue also tumbled 42.1% year-on-year to $105.7 million. The fall in both the top and bottom lines was due to lower licensing and film production revenues.

Licensing revenue slipped 15.8% to $48.9 million, whereas film production revenue dipped 72.5% to $24.8 million. While no films were released in the reported quarter, the year-ago quarter benefited from the releases of Iron Man and The Incredible Hulk, in addition to its Spider-Man merchandising joint venture.

Marvel is slated to release four films ahead: Iron Man 2 in 2010, Thor and The First Avenger: Captain America in 2011, and The Avengers in 2012. Marvel’s film and licensing segments are release-driven and therefore lumpy, making the effects of the economy hard to discern.

Publishing revenue dropped 5.9% to $32 million due to lower custom publishing and advertising revenue. We think revenue will inevitably decline in 2009 as the economy worsens.

Marvel’s business model of leveraging its library of more than 5,000 trademarked and often ubiquitous characters across three businesses -- comic books, toys and films -- while putting little capital at risk has proven lucrative. Walt Disney Company (DIS - Snapshot Report) has recently acquired Marvel in a cash and stock deal for $4 billion, and is considered by msny to be the best home for Marvel brands.

The purchase of Marvel Entertainment is considered to be Disney's largest acquisition since 2006, when it had purchased Pixar Animation Studios for $7.4 billion. The deal is expected to close by the end of the year.

Marvel ended the quarter with cash and cash equivalents of $109.6 million and shareholders’ equity of $476.9 million, with no outstanding borrowings under its $100 million line of credit.