Marvel Enterprises (MVL) tops expectations; announces plans to produce its own films; settles dispute with Stan Lee

Marvel Entertainment (ticker: MVL) reported results on April 28, 2005 for the first quarter 2005.  Below are some highlights.

Results 1Q05 vs. 1Q04:

• Reported EPS: $0.25 vs. $0.27 (-7%)
• Adjusted EPS: $0.31 vs. $0.27 (+15%)
• Consensus EPS was $0.27
• Revenue: $104.1M vs. $122.3M (-15%)
• Consensus revenue was $95M
• Gross profit: $91.8M vs. $81.8M (+12%)
• Gross margin: 88.2% vs. 66.9% (+2,130bps)
• Operating income: $48M vs. $57.3M (-16%)
• Operating margin: 46.1% vs. 46.9% (-80bps)
• Net income: $27.7M vs. $31.1M (-11%)
• Net margin: 26.6% vs. 25.4% (+120bps)

Licensing 1Q05 vs. 1Q04:

• Revenue: $71.2M vs. $46.9M (+52%)
• Gross profit: $71.2M vs. $46.9M (+52%)
• Gross margin: 68.4% vs. 38.3% (+3,010bps)
• Operating income: $39.7M vs. $35.9M (+11%)
• Operating margin: 38.1% vs. 29.4% (+870bps)

Publishing 1Q05 vs. 1Q04:

• Revenue: $22.4M vs. $19.6M (+14%)
• Gross profit: $12.8M vs. $10.7M (+20%)
• Gross margin: 12.3% vs. 8.7% (+360bps)
• Operating income: $8.9M vs. $7.3M (+22%)
• Operating margin: 8.5% vs. 6.0% (+250bps)

Toys 1Q05 vs. 1Q04:

• Revenue: $10.5M vs. $55.8M (-81%)
• Gross profit: $8.1M vs. $24.2M (-67%)
• Gross margin: 7.8% vs. 19.8% (-1200bps)
• Operating income: $4.4M vs. $18.2M (-76%)
• Operating margin: 4.2% vs. 14.9% (-1,070bps)

2005 Guidance and Drivers:

• MVL maintained its previous guidance ranges for 2005; included in this guidance is the $10M charge  in 1Q05 related to the settlement with Stan Lee, and the elimination of the previously expected $4.3M expense for stock options
• Licensing is expected to generate approximately 50% of total sales for the year with operating margins ranging between 60% - 65%.

Previously issued guidance:

• Revenue: $370M - $390M
• Net income: $120M - $126M
• EPS: $1.07 - $1.12

Quick comments:

• One-time charge: Included in the quarter was a $0.06 per share after-tax charge related to the settlement with former MVL Chairman Stan Lee; the company has resolved its legal dispute with Mr. Lee and will pay him a lump sum in May 2005.
• Credit facility: In April 2005, MVL entered into a $525 7-year credit facility to fund future film projects, including Captain America and Nick Fury; the company used intellectual property rights for 10 characters as collateral