5 Things Marriott's Management Wants You to Know

With over 4,000 properties worldwide, and 2013 gross revenue of over $13 billion, Marriott International,Inc. is one hotel company worth watching now. With 18 brands including Marriott Hotels, Ritz Carlton, and others in both the luxury and mass-market segments, the company has been aggressively expanding in the past five years, and its growth in number of properties has helped to spur its growth in profits and share value. But even after the incredible run-up in the company stock over the past year, it still doesn't look very expensive in the industry, especially compared with competitors such as Hilton Worldwide .

Source: Yahoo! Finance.

The second quarter marked another strong performance for Marriott, with many exciting trends that the company is working on now, such as expansion in new and key regions. In the conference call following the company's second-quarter release, Marriott CEO Arne Sorenson and his team gave the following comments that investors should be paying attention to.

Diversifying for more growth

While broad distribution obviously drives sales, it also allows us to leverage our sales and marketing resources, our branding efforts, our reservation system and our frequent traveler program. It provides our customers with greater choices and better products wherever they choose to travel, and it delivers greater efficiency and profitability to our owners, all of which drive higher shareholder value.-- Sorenson

In recent years, Marriott's growth strategy has been to diversify operations, working to drive up distribution in key markets and decentralize development within the organization. The goal of this diversification and increased distribution is to get closer to the customer, get more resources to high-growth regions, and increase overall development. To that aim, the company has increased its number of developers and support staff worldwide by over 35% since 2009.

The second quarter was right in line with this strategy, and during the quarter the company added 162 properties with 18,729 rooms. This has brought the total portfolio of Marriott-owned lodging properties and time-share resorts to 4,087, with nearly 697,000 rooms. And the company is increasing its development schedule going forward.

It's worked over the past year, and Q2 was no exception

The company posted another strong quarter with its Q2 results, following a Q1 beat of analyst estimates. For the second quarter, Marriott's EPS of $0.71 was 6% higher than the earnings estimate from Zacks Investment Research of $0.67 per share and its own guidance range of $0.63-$0.68 per share. Q2 earnings were up nearly 25% over the same quarter last year.

The company also raised its guidance for revenue per available room, or RevPAR , for the full year 2014, after also having raised it during the first-quarter earnings release.

For the full year, we are increasing our worldwide RevPAR guidance [from] 5% to 7%. We expect rooms growth to total roughly 7% gross or 6% net, driving fee revenue to $1.685 billion to $1.725 billion.-- CFO Carl Berquist

All of this diversification and increased development has worked, allowing the company to reap the profits from its growing portfolio of properties. Shareholders have been rewarded as well for this growth, especially as the stock has soared in the past year.

International and U.S. growth

Year to date in 2014, we have opened 25,000 rooms worldwide compared to 11,000 rooms in the prior year.-- Sorenson

Marriott's new hotel in Cali, Colombia. Photo: Marriott.

It's clear that Marriott is interested in growing and diversifying. While the company is continuing to do well in North America, with RevPAR guidance raised for this region as well, the company is also making a strong push right now to increase its growth internationally.

The company's properties in Latin America, particularly in key regions such as the Caribbean, Mexico, and Brazil have been expected to reach double-digit RevPAR growth rates during 2014 according to Zacks analysts, while the company itself set guidance at high-single digits. This has been driven by a room development pipeline in Latin America that has nearly doubled in the past 12 months, with 35 projects currently under way.

While Marriott's prospects internationally are strong and the company continues to raise its guidance following Q1 and Q2 successes, there will be headwinds to be aware of. In particular, political turmoil in Latin America, as well as unrest in places such as Ukraine and Russia, which affect most businesses with operations in the region, could lower Marriott's capacity for growth in these areas. Regardless, the company expects up to 7% room growth worldwide in 2014 based on current construction and pending deals.

Don't think that the company is focusing on emerging markets at the expense of its home market. The company's "diversification" with more international growth is just that, diversification, but the company is still a strong play on further U.S. growth. Responding to an analyst question about continued growth CEO Sorenson said that he is still bullish on continued growth in the U.S. as well.

But when you look at our 215,000 room pipeline, we're about 50% U.S. and about 50% international. -- Sorenson

While Latin America is one area where the company is boasting strong growth, and the company remains strong in the United States, you might be surprised where else the company is planning to start aggressive expansion next. Marriott's pipeline in the Middle East and Africa is up 35% over the same period last year, and the company now has full-service deals in many Middle East and sub-Saharan African markets.

Growth wild card: Africa

It's a great time to do business in Africa and Marriott is at the table helping to lead the discussion on trade and investment across the continent. African leaders are looking at ways to spur economic growth by lowering barriers, such as onerous visa regimes. Travel is trade and the more Africa embraces Smart Travel policies that encourage the free flow of people, the quicker growth will come.-- Sorenson

A room at one of Marriott's newly acquired Protea hotels in Africa. Photo: Marriott

These words from Sorenson come not from the company's Q2 conference call, but instead from a news release the company posted in early August following its commitment to growth in Africa, along with other U.S. companies, as President Obama tries to push more business development and trade with the region.

At a forum in August that included Obama and 200 CEOs from the U.S. and Africa, Sorenson stated his plans for Marriott to operate over 150 hotels across the region, which he said would result in 25,000 jobs. Sorenson said this development will go on through 2020. This initiative is in addition to the 130 properties Marriott already owns or franchises in the region, having developed or acquired the properties through the purchase of The Protea Group in April. That move made Marriott the largest single hotel chain in the region, and the stated growth in the region will help to assure that Marriott remains the largest player in this developing area.

Africa is going through an economic transformation. Coupled with that transformation is a mutual promise for opportunity that Africa holds -- for us as a business and for the people who are hired, trained, and work in hotels across our portfolio.-- Sorenson, during the August forum

Is Marriott a buy now?

As the advancing share price demonstrates, the past five years have seen a lot of growth, and the company continues to implement its diversification and growth strategy. And as another strong quarter illustrates -- with a Q2 earnings estimates beat, 25% higher earnings over Q2 last year, and raised 2014 guidance -- the company is in a good position right now for continuing to grow profits.

Investors who bought into Marriott at this time last year should be happy with more than a 66% share price appreciation year to date. Yet because of that growth, is the company too expensive now? Consider that the company still has a lower P/E than its main competitor, Hilton Worldwide, and forward-looking P/E estimates for the company look even better. At a current P/E multiple of 31, Marriott is cheaper than Hilton's 47. While the industry average is closer to 26 times earnings, Marriott's forward-looking 2015 year-end estimated P/E of just 23 looks pretty solid in this industry, especially when considering that the company has continued to beat estimates so far during both quarters of 2014. With big expansion plans that should make the next five years as successful as the past five, and continued upward-amended guidance, Marriott looks like a good place to rest your investment dollars for the long term.

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The article 5 Things Marriott's Management Wants You to Know originally appeared on

Bradley Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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