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Marvel (NYSE: MVL) reported Q4 and full-year earnings this morning, and as a shareholder, I have to say that the company came through like any superhero would. Net sales for the fourth quarter leaped 28% to $109.3 million, while earnings per diluted share more than doubled to $0.35. For the year, net sales soared 38% to $485.8 million, and earnings per diluted share again went beyond the doubling point, coming in at $1.70.
But, when we get to the cash-flow statement, we shudder as if we are in the presence of a diabolical villain bent on our utter destruction. You see, cash was used for operations as opposed to being generated. Fans of free cash flow -- I being one of them -- hate this. But, perhaps we can cut Marvel some slack. The cash-flow statement explains something we already know -- making movies is an expensive proposition, so the use of cash was highly influenced by the investments in film production. Marvel has Iron Man and a new version of The Incredible Hulk coming to theaters this year; if they are big hits, then this use of cash will hopefully not seem like such an evil thing.
I believe that they will be hits and that they will justify Marvel's business model of making movies; previously, the company just licensed its intellectual property to studios such as News Corp.'s (NYSE: NWS) Fox and Sony (NYSE: SNE) so that it could participate in the profits without taking on risk. Plus, keep in mind that Marvel uses money from a credit facility to fund its films; this is a non-recourse credit facility, and Marvel is using certain rights to the characters as collateral in case the movies fail in the marketplace and the company cannot pay back the facility.
With Marvel actually producing its films, the company can look forward to a bigger piece of the pie. That means I can look forward to following the performance of Iron Man and Hulk when they hit the screens. Sure, Marvel will probably be more volatile than a Disney (NYSE: DIS) or a Time Warner (NYSE: TWX), but it offers a closer way to play the upcoming box office race than either of those two media conglomerates.
Disclosure: I own shares in Disney and Marvel.
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