Marvel's Mystifying Split

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Marvel Enterprises (NYSE: MVL), the comics maker turned licensing powerhouse, makes a lot of money by capturing America's attention with superheroes like Spider-Man and the Incredible Hulk. But this morning, it looks like Marvel used its superpowers to direct the public's gaze away from its financial results. The trick? A three-for-two stock split.

The tragedy is that there was nothing really wrong with the fourth-quarter and full-year numbers reported today. Sales were strong for the year, up 16% to $347.6 million. Operating income more than doubled to $167.2 million. Operating margins zoomed from 27% to 48%, which yielded earnings per share of $1.58 (if you back out the one-time credit of $0.43 per share Marvel realized in the third quarter). There were a couple of missteps for the fourth quarter, but earnings still hit $0.18 per share, a penny better than expected.

For the year, cash from operating activities was $171 million, up 128%. And the generation of green will only accelerate when the firm retires its remaining debt in June and reaps the rewards of this summer's release of Spider-Man 2, along with many new games and other licensing. Marvel expects 2004 revenues to increase around 25% to near $430 million. Despite these strengths, it was forced to guide next year's earnings to around $1.30 per share, a drop from 2003 due to the fact that after success comes the taxman.

That's what makes the split look so curious. Remarks by President and CEO Alan Lipson contained the usual verbiage about improving liquidity, along with this tidbit. "The decision to split the stock reflects our interest in creating a more affordable share price, which will enable a broader base of investors and Marvel fans to purchase Marvel stock."

A little more of that and I'll have everything I need to fertilize my garden this spring. Under the plan, shares will be repriced from around $33 to $22. Do they really think that America's comic-book fans can't afford the extra $11 a stub? This looks like a facile and unnecessary attempt to hype the stock. Here's some unsolicited advice for Marvel's management: Sell the superheroes. Make loads of money. Let the shares sell themselves.

David Gardner recommended Marvel twice for Motley Fool Stock Advisor subscribers. The July 2002 Marvel recommendation is up 534%, and the Dec. 2002 recommendation is up 294%. Want to see what else David's eyes are on? Check it out, risk-free, for six months.

Fool contributor Seth Jayson makes regular visits to a nearby nuclear power plant, but has not yet acquired any superpowers. He owns shares of Marvel.