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MAR Earnings in Line, Guides Lower - Analyst Blog

By: Zacks.com
Posted: 8/1/2013 10:22:00 AM
Referenced Stocks: HMIN;HOT;MAR;WYN

Leading hotelier Marriott International Inc. 's ( MAR ) second-quarter 2013 earnings of 57 cents per share were in line with the Zacks Consensus Estimate but beat the year-ago level of 42 cents by 35.7%. Earnings were also within management's guidance range of 55 cents-59 cents per share. The year-over-year rise in the earnings were led by the company's higher top line, margin expansion and lower share count from share buyback activities.

Total revenue in the second quarter was $3.26 billion, up 18% year over year and also better than the Zacks Consensus Estimate of $3.23 billion by nearly 1%. Marriott's growing North American business and continued expansion of its lodging properties helped drive revenues during the quarter. Additionally, Marriott gained from the rise in the fee revenues at its managed and franchised properties.

Marriott has shifted its fiscal calendar starting in 2013. Now the company's second-quarter includes the period within Apr 1, 2013 - Jun 30, 2013 (91 days) as compared with the year-ago period of Mar 24, 2012 - Jun 15, 2012 (84 days).

Revenue in Detail

In the second quarter, base management and franchise fees increased 19.9% year over year to $343 million. The rise was mostly due to the shift in Marriott's fiscal calendar, which added $24 million to its quarterly revenues. Along with these, increased revenue per available room (RevPAR) growth in the existing properties and higher fees earned from the company's newly launched hotels also boosted the base management and franchise fees during the quarter.

Incentive management fees increased 14% year over year to $64 million, benefiting from the company's calendar change and higher occupancy rates.

Owned, leased, corporate housing and other revenues, net of direct expenses, were down 16.4% to $51 million due to a decline in the residential branding fees as well as corporate housing revenues and higher termination fees. Poor performance at some of the leased properties at the international locations also affected the revenues.

RevPAR & Margins

In the second quarter, RevPAR for worldwide comparable system-wide properties grew 4.7%, driven by a 3.2% rise in the average daily rate (ADR). Following a 3.9% rise in the ADR, comparable system-wide RevPAR in North America were up 5.2%. Marriott has benefited from low supply growth in North America, given an increased demand scenario in both the business and leisure channels. However, the company has witnessed a decline in group booking during the quarter. International comparable systemwide RevPAR climbed 2.8% with the rise in ADR and occupancy.

Adjusted operating margin in the quarter expanded 300 basis points to 43% driven by higher top line and better pricing.

Update on Hotel Rooms

During the second quarter, 43 properties with 6,203 guestrooms were added to Marriot's existing hotel portfolio. The company also divested 18 properties. Currently, Marriott boasts as many as 3,847 lodging properties and 663,000 timeshare resorts. Nearly 850 properties with over 140,000 rooms are either under development or already under construction or undergoing conversion to the company's brands mostly at international locations.

Share Repurchase

In the reported quarter, the company bought back 7.0 million shares worth $288 million. At the end of the quarter, nearly 21.4 million shares were left to be purchased under the current share repurchase program.

In 2013, Marriot is expecting to return $800 million to shareholders through share repurchase and dividend.

Q3 and FY13 Guidance

For third-quarter 2013 , earnings per share are estimated to be within 42 cents and 46 cents. Marriot's total fee revenue is expected between $370 million and $380 million. The company projects operating income within the $215 million and $235 million range gaining from the shift in the company's fiscal calendar.

The company estimates that North American comparable system-wide RevPAR will be up 4% to 6%, whereas the same will be flat to up 2% outside North America. Moreover, worldwide comparable system-wide RevPAR is expected to increase between 3% and 5%.

Marriott lowered its guidance for full year 2013 . The company decreased the higher end of its fee revenue guidance to $1.56 billion from $1.58 billion. In 2013, the fee revenues are now expected to be within $1.53 billion to $1.56 billion, up 7%-10% year over year.

For 2013, the company also trimmed its RevPAR outlook. Marriott now projects comparable system-wide RevPAR in North America within 4.5% to 6% versus its previous estimates of 4.5% to 7%. The same is projected to be 2% to 4% outside North America, lower than the prior guidance of 3% to 5%. Worldwide comp growth is expected to be 4% - 6%, down from 4% - 7%.

Management expects owned, leased, corporate housing and other revenues, net of expenses to decline 3% to 9% to $150 million - $160 million in 2013 owing to a host of issues. Firstly, properties in London are likely to face tough year-over-year comparisons due to the Olympics held last year. Secondly, the renovation of two leased properties in 2013 will mar consolidated results. Finally, lower residential branding fees and higher pre-opening costs are likely to hurt the company's financials in 2013.

Operating income is expected to be within the range of $970 million to $1,025 million, down from the prior guidance of $990 million to $1,060 million. Keeping these factors in mind, Marriott has also reduced its earnings guidance. For 2013, earnings per share are expected in the range of $1.92 - $2.03, down from the previous estimate of $1.93 - $2.08.

Our Take

Although Marriott has posted double-digit top-line growth and higher earnings in the past three quarters, a lowered guidance for 2013 remain a major cause of concern. We believe that sluggish group booking demand and reduced government spending on travel will hurt the company's financials in 2013. Moreover, the weak economic conditions in Europe and the slowdown in China continue to be headwinds.

A leading hospitality company, Starwood Hotels & Resorts Worldwide Inc. 's ( HOT ) earnings in the second quarter beat the Zacks Consensus Estimate but its revenues missed the same. Another hotelier, Wyndham Worldwide Corporation ( WYN ), surpassed the Zacks Consensus Estimate for both earnings and revenues in the second quarter.

Marriott currently holds a Zacks Rank #4 (Sell). Another hotelier, which is worth considering at the moment, is Home Inns & Hotels Management Inc. ( HMIN ) carrying a Zacks Rank #1 (Strong Buy). Home Inns & Hotels is expected to report its second quarter earnings on Aug 12.



HOME INNS&HOTEL (HMIN): Free Stock Analysis Report

STARWOOD HOTELS (HOT): Free Stock Analysis Report

MARRIOTT INTL-A (MAR): Free Stock Analysis Report

WYNDHAM WORLDWD (WYN): Free Stock Analysis Report

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