Marvel released its third quarter results on Wednesday, along with guidance for 2006, and both were disappointments relative to expectations.  While still very profitable, the company's sales and profits both sank compared to the year-ago period, and the company warned of a 'difficult year' in 2006. 

 

Third quarter earnings were around $23 million, or $.24 per share, compared to $34 million, or $.32 per share, in the same period last year, a 25% drop.  Expectations were for earnings of $.30 per share.  Sales dropped to $81 million from $135 million in the year ago period.

 

Licensing and toys accounted for the drop, with publishing up 14% from the same period last year to $25.8 million in sales for the quarter.  Things were so bad in the toy segment that publishing revenues and contribution to earnings actually passed those from toys.  Licensing revenues dropped 52%, and toy revenues were down a similar 46%, with the comparison to a Spider-Man movie year in 2004 a big reason for both. 

 

The increase in publishing sales was attributed primarily to stronger sales of trade paperbacks, and those sales carried a higher margin than periodical sales because of lower costs for creators as a percentage of sales in the trade paperback business. 

 

Marvel's Q4 2005 guidance was up a hair from past guidance, due to a major videogame license, which will offset lower than expected toy sales from Fantastic Four, Curious George, and TNA wrestling.  Curious George and TNA toys have been pushed back to 2006 from an anticipated 2005 release due to a 'weak retail environment.'  Marvel's licenses of its properties for consumer products have also stopped exceeding expectations, and are settling back a bit.

 

Marvel is forecasting fairly massive drops in revenues in 2006, to $270-$300 million from an anticipated $385-$395 million this year and $513 million last year.  Profits are also expected to tank, to $38-$53 million from an anticipated $111-$114 million in 2005 and $125 million in 2004.  The drops are related to anticipated declines in toy and licensing sales. 

 

The stock price was hammered, down $3.98 to $14.06 by the end of the day, a 22% decline.  Southwest Securities downgraded the stock from a 'Strong Buy' to 'Neutral,' citing the size of the disappointment as its reason.  Marvel announced that it will be buying back another $250 million worth of its stock, using cash from operations and up to $125 million of a new $150 million bank loan.