Marriott International Inc. (MAR) reported second quarter 2012 earnings of 42 cents per share, in line with the Zacks Consensus Estimate. However, earnings in the reported quarter were 24% higher than the year-ago quarter adjusted earnings of 34 cents per share.
Total revenue was $2,776 million in the second quarter, up 7% year over year from $2,605 million, but lagged the Zacks Consensus Estimate of $2,831 million by 2%.
Inside the Headline Numbers
Base management fees rose 4% year over year to $141 million while franchise fees increased 7% year over year to $145 million, attributable to higher revenue per available room (RevPAR) at existing hotels and fees from new hotels. Incentive management fees jumped 12% year over year to $56 million. Owned, leased, corporate housing and other revenues climbed 6% to $264 million.
RevPAR for worldwide comparable system-wide properties grew 6.7% during the quarter. International comparable system-wide RevPAR climbed 7.2% year over year with a 3.0% increase in average daily rate.
In North America, comparable system-wide RevPAR leaped 6.5%, with the average daily rate up 4.3%. RevPAR for comparable company-operated North American full-service and luxury hotels escalated 6.4%, driven by a 3.9% rise in average daily rate. RevPAR for comparable company-operated North American limited service hotels grew 6.7%, driven by a 4.5% upside in average daily rate.
Update on Hotel Rooms
During the quarter, Marriott added 29 new properties and divested 13 properties. At the end of the second quarter, Marriott’s pipeline of hotels under construction awaiting conversion or approved for development totaled approximately 700 properties with over 115,000 rooms.
The company now expects to open approximately 20,000 to 25,000 rooms in 2012, down from the previous estimate of 25,000 to 30,000 rooms, due to some delays in new hotel construction in the Middle East, Asia and Mexico.
At the end of the second quarter, total debt was $2,560 million and cash balances totaled $105 million compared with $2,171 million of debt and $102 million of cash at the end of 2011, respectively.
In the reported quarter, the company repurchased 10.5 million shares for $400 million. As of June 15, 2012, Marriott had 25.8 million shares remaining under its repurchase authorization.
For the third quarter, the company estimates that comparable system-wide REVPAR will increase in the range of 6% to 8% in North America, 5% to 7% outside North America and 6% to 8% worldwide.
The company expects total fee revenue between $315 million and $325 million and earnings per share between 39 cents and 41 cents in the third quarter of 2012.
The company continues to expect full year 2012 comparable system-wide REVPAR on a constant dollar basis to increase 6% to 8%, in North America and worldwide. However, the company has trimmed the comparable system-wide REVPAR growth outside North America to 5% to 7% from 6% to 8%, owing to the poor demand in the Middle East and Asia market, particularly for high-end hotels.
For 2012, Marriott forecasts fee revenue in the range of $1,410 million to $1,440 million, down from the earlier projection of $1,425 million to $1,465 million. The reduction in fee revenue was based on the unfavorable foreign exchange rate, the sale of the corporate housing business, some deferred hotel openings and lower REVPAR growth in some international markets.
However, earnings per share projection for 2012 has been raised from $1.58–$1.69 to $1.65–$1.75.
We believe that Marriott’s strong pipeline, significant international exposure, solid balance sheet, aggressive buyback strategy, lower operating cost structure and increased market share augur well for its earnings. The company is also experiencing strong group bookings in North America. Group business momentum continues, as the bookings for group business is up over 10% for the second half of 2012 and 8% for 2013. However, in the near term, the company’s business in some international markets like Middle East and Asia remains soft. Moreover, stiff competition from the major hotel chains and independent companies in the regional markets further add to the uncertainty.
Marriott, which competes with the likes of Intercontinental Hotels Group Plc. (IHG) and Starwood Hotels & Resorts Worldwide Inc. (HOT), currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term Outperform recommendation on the stock.
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