Leading hotelier Marriott International Inc.’s (MAR) third-quarter 2013 earnings of 52 cents per share beat the Zacks Consensus Estimate of 45 cents by 15.6% and the year-ago level of 44 cents by 18.2%. Earnings were also ahead of management’s guidance range of 42 cents–46 cents per share. Earnings in the quarter received a boost from the company’s higher top line and lower share count from share buyback activities.
Total revenue in the third quarter was $3.16 billion, up 15.8% year over year and also ahead of the Zacks Consensus Estimate of $3.06 billion by nearly 3.3%. The upside was led by higher pricing, a 75% increase in worldwide occupancy and a 5% rise in worldwide revenue per available room (RevPAR). Additionally, the company benefited from the solid group booking business in North America and rise in the fee revenues at its managed and franchised properties.
Marriott has shifted its fiscal calendar starting first-quarter 2013. Now the company’s third-quarter includes the period within Jul 1, 2013–Sep 30, 2013 (92 days) as compared with the year-ago period of Jun 16, 2012–Sep 7, 2012 (84 days). The company did not restate the prior-year results.
Revenues in Detail
In the third quarter, base management and franchise fees increased 14.8% year over year to $325 million. The rise was mostly due to the shift in Marriott’s fiscal calendar, which added $25 million to its quarterly revenues. Along with these, solid RevPAR growth in the existing properties, higher fees earned from the company’s newly launched hotels and increased relicensing fees aided the base management and franchise fees during the quarter.
Incentive management fees increased 47% year over year to $53 million, benefiting from the company’s calendar change and higher fees earned from the New York and Boston market, offsetting weak performance in Washington, DC and Egypt.
Owned, leased, corporate housing and other revenues, net of direct expenses, were up 30.8% year over year to $34 million with the rise in the termination fees and higher fees earned from the leased properties.
RevPAR & Margins
In the third quarter, RevPAR for worldwide comparable system-wide properties grew 4.8%, driven by 3.4% rise in the average daily rate (:ADR). Comparable system-wide RevPAR in North America were up 5.2%, driven by a 3.9% rise in the ADR. Marriott has benefited from low supply growth in North America, given an increased demand scenario in both the business and leisure channels. Marriott has also witnessed a rise in group business during the quarter. International comparable system-wide RevPAR climbed 3.4% with the rise in ADR and occupancy.
Adjusted operating margin (cost reimbursement excluded) remained flat year over year at 41% as the rise in revenues was offset by higher costs.
Update on Hotel Rooms
During the second quarter, 44 properties with 6,580 guestrooms were added to Marriot’s existing hotel portfolio. The company also divested eight properties. Currently, Marriott boasts as many as 3,900 lodging properties and 670,507 timeshare resorts. Nearly 850 properties with over 144,000 rooms are either under development or already under construction or undergoing conversion to the company’s brands, mostly at international locations.
In the reported quarter, the company bought back 3.2 million shares worth $129 million. At the end of the quarter, nearly 17.6 million shares were left to be purchased under the current share repurchase program.
Fourth-Quarter 2013 Guidance
For fourth-quarter 2013, earnings per share are estimated to be within 47 cents to 50 cents. Marriot’s total fee revenue is expected between $370 million to $380 million.
The company expects its operating income within the range of $235 million–$250 million, lower than the year-ago level of $309 million. The decline in the operating profit is expected to be mostly due to the shift in the company’s fiscal calendar which will lead to a shorter fourth quarter. Fourth-quarter 2013 will now have 92 days compared to 112 days in the year-ago quarter. Further, the government shutdown in the U.S. in early October and slow international RevPAR growth will also hurt operating income in fourth-quarter.
The company estimates that North American comparable system-wide RevPAR will be up 4.5% to 5.5%, whereas the same will be up 1%–2% outside North America. The government shutdown in October is expected to hurt the North American RevPAR by 1% in the fourth quarter.
Full-Year 2013 Outlook
Marriott tightened its earnings guidance for full-year 2013. Earnings per share are now expected in the range of $1.98–$2.01 as compared with the previous estimate of $1.92–$2.03.
The company decreased the higher end of its fee revenue guidance to $1.54 billion from $1.56 billion. In 2013, the fee revenues are now expected to be within $1.53 billion–$1.54 billion.
Marriott continues to project that its comparable system-wide RevPAR in North America will be within 4.5% to 6%. The same is projected to be in the range of 2% to 4% outside North America. Worldwide comp growth is expected to be within 4%–6%.
Management expects owned, leased, corporate housing and other revenues, net of expenses to be $161 million, up from the prior estimates of $150 million–$160 million in 2013. The company raised the revenue guidance after witnessing solid performance in several owned and leased properties.
The company has also trimmed its guidance for operating income due to lower operating income in the fourth quarter. It is expected to be within the range of $985 million to $1,000 million versus the prior guidance of $970 million to $1,025 million.
The company reported better-than-expected results on the back of growing North American business, significant international exposure, aggressive buyback strategy and increased market share. The strong group booking trend in North America is also positive for the company. Additionally, Marriott’s focus on the upper-moderate and economy segments will boost its business, going ahead.
Marriott holds a Zacks Rank #2 (Buy). Some other hoteliers that are currently performing well include Choice Hotels International Inc. (CHH), Starwood Hotels & Resorts Worldwide Inc. (HOT) and Wyndham Worldwide Corporation (WYN). All these companies carry a Zacks Rank #2.Read the Full Research Report on HOT
Read the Full Research Report on WYN
Read the Full Research Report on MAR
Read the Full Research Report on CHH
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