We reiterate our Outperform recommendation on leading worldwide hospitality company Marriott International Inc. (MAR).
The company reported first quarter 2012 earnings of 30 cents per share, which surpassed the Zacks Consensus Estimate by a penny and year-ago quarter adjusted earnings by 30%. Total revenue was $2,552 million, up 4.6% from the year-ago quarter. RevPAR for worldwide comparable system-wide properties grew 6.8% during the quarter.
The company also raised its outlook for 2012. The company now projects comparable system-wide RevPAR on a constant-dollar basis to increase 6% to 8% across all the operational regions versus previous estimation of 5% to 7%.
For 2012, Marriott forecasts fee revenue in the range of $1,425 million to $1,465 million compared with the earlier projection of $1,410 million to $1,450 million. Earnings per share projection are raised from $1.52–$1.64 to $1.58–$1.69.
Marriott has a substantial development pipeline and is poised to benefit from the increase in demand for hotels going forward. As the demand for hotels particularly in the international market is increasing, Marriott should benefit from its global exposure. Global travel is rising continuously with significant tourism from Brazil and China.
In the first quarter, Marriott witnessed strong demand in the Caribbean, Latin America and Asia. Business in Japan is also bouncing back, as local demand is strengthening. The company's worldwide development pipeline has increased to 115,000 rooms at the end of the first quarter, up 5,000 sequentially.
The hotelier also expects fiscal 2012 to be promising as strong demand and pricing continue.The company is making efforts to increase the room rates by reducing discounting and improving the mix. Moreover, moderate supply growth in North America will help to raise the price higher.
Group business momentum continues, as group revenue climbed 6% in the first quarter of 2012. Additionally, in the first quarter, the bookings for group business for the remainder of 2012 is up over 11% as compared to 2% in the year-ago period, driven by solid group demand and marvelous performance of new North American sales organization.
Transient business was also strong in the quarter. Revenue from special corporate guests increased over 9% in the quarter, with increasing room rates. Smaller hotel group bookings for fiscal 2012 are up in the double digit, whereas for larger hotels, group booking is up high-single digits.
Marriott’s recent agreement to take over the Gaylord brand and hotel management company for an upfront payment of $210 million in cash by October 2012 also remains strategically sound. Upon execution of the deal, Gaylord will retain its existing properties while Marriott will take over their management under long-term agreements for 35 years.
Marriott’s management anticipates to earn an incentive fee in its first full year of services, and the transaction to be accretive to Marriott's earnings per share by approximately 2 cents per share in 2013.
We are also encouraged by the company’s solid balance sheet, aggressive buyback strategy, lower operating cost structure and increased market share. The company also recently hiked its quarterly dividend by 30%. Moreover, divestiture of the timeshare business is promising, as Marriott is able to concentrate on its core hotel management and franchise business.
Additionally, European RevPAR trends improved to 3.0% in the first quarter, driven by strength in gateway cities. For 2012, management is forecasting modest RevPAR growth of 2%-3% for the region driven by Olympics in London, a strong Paris convention calendar and Euro 2012 soccer championship in Warsaw.
Zacks Consensus Estimates Increased
Over the last 30 days, one and four out of 19 analysts have raised the estimates for 2012 and 2013. None of the analysts have moved in the opposite direction.
The Zacks Consensus Estimate for fiscal 2012 remains unchanged at $1.65, but has jumped by 2 cents to $2.01 for 2013, over the last 30 days.Read the Full Research Report on MAR
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