Marvel Q2 earnings trail Wall Street, shares down

BANGALORE (Reuters) - Marvel Entertainment Inc. (MVL.N), which licenses comic book characters, reported lower-than-expected quarterly earnings and cut its toy-sales forecast for the second half of the year due to possible lower reorders from toy maker Hasbro Inc. (HAS.N).

Shares of New York-based Marvel, which boasts a stable of more than 5000 characters including Spider-Man, The Incredible Hulk and X-Men, dropped more than 5 percent in afternoon trade.

Marvel shares had slid about 11 percent since the beginning of the year before Tuesday's losses. Investor fears have been stoked by doubts about the company's ability to maintain earnings growth after revenue from Spider-Man ebbs.

The company reported second-quarter earnings of 34 cents a share versus Wall Street expectations of 39 cents a share, excluding items.

Net sales rose about 20 percent to $101.5 million, but trailed market expectations of $109.3 million.

TOY TROUBLE

Marvel reduced its toy-sales forecast for the second half of 2007 to the low end of Hasbro's forecast to reflect the possibility of lower reorders, Chief Financial Officer Kenneth West said in a conference call.

Last year, Marvel shook hands with Hasbro on a five-year master toy licensing deal, giving the world's No. 2 toy maker the right to produce toys and games based on Marvel's crop of characters.

Marvel's characters are vying with more competitors for shelf spaces in toy stores as there are more "toyetic" films that can be exploited by toy sellers, Stifel Nicolaus analyst Drew Crum said by phone.

Last month, "Transformers," a movie based on 1980s toys, raked in a record $152.6 million in its first seven days after release. The film was co-produced by Paramount and DreamWorks, which are part of Viacom Inc. (VIA.N).

Marvel's second-quarter toy segment revenue fell about 24 percent to $19.3 million, which makes up about one-fifth of total sales.

"The shares are reflecting a little bit of a pull-back in toy sales, expectations, (especially) Spider-Man," Janco Partners Inc. analyst Mike Hickey said by phone.

Marvel company spokesman Richard Land said the company would not provide any figures about the toy sales outlook cut.

However, the company reiterated its overall outlook for 2007 as it hopes the lower toy sales would be offset by greater contributions from both its international licensing and publishing segments in the second half of the year.

WEAK SUPERHEROES?

There is concern that Marvel has already exhausted its best characters and is left only with lesser-known characters for its self-produced movies, Stifel Nicolaus' Crum said.

Marvel, which licensed the theatrical character rights for Spider-Man to Sony Corp. (SNE.N) (6758.T), is now going solo by producing films based on the Iron Man and The Incredible Hulk characters through its own movie unit.

"To suggest one of these upcoming films can rival what Spider-Man does, that might be a stretch," Crum said.

Universal, owned by General Electric (GE.N), and Marvel in 2003 produced "Hulk," which grossed $245 million at global box offices. But the amount was deemed to be a modest sum given its high expectations and budget of nearly $140 million.

Spider-Man helped second-quarter licensing results but most of the revenue from the webbed superhero for the year has already been realized, CFO West said.

"The Street's looking at 2008," Janco Partners' Hickey said.

With the release of their films next year, Hickey said there's more risk to their earnings potential.

Shares of Marvel were trading down $1.29 at $22.66 in afternoon trade on the New York Stock Exchange.

(Additional reporting by Saumyadeb Chakrabarty)