Marriott Beats 1Q Earnings and Revs
Marriott International Inc. (MAR) posted first-quarter 2013 earnings of 43 cents per share, beating the Zacks Consensus Estimate of 41 cents by 4.9% and the year-ago level by 43.3%. Marriott’s strong top-line, margin expansion, effective pricing strategy and share buyback activities pushed up the earnings for the quarter.
Total revenue in the first quarter was $3.1 billion, up 23% year over year and also better than the Zacks Consensus Estimate of $2.9 billion by 6.9%. Marriott’s growing North American business and solid development pipeline helped drive the revenues during the quarter. Additionally, Marriott has also gained from the rise in the fee revenues at Marriott’s owned, licensed and franchised properties.
Inside the Headline Numbers
In the first quarter, base management and franchise fees increased 23.4% year over year to $153 million. The rise was mostly due to the shift in Marriott’s fiscal calendar, which added $31 million to its quarterly revenue. Apart from this, an increase in the revenue per available room (RevPAR) 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 32% year over year to $66 million, benefiting from the company’s calendar change and Gaylord acquisition.
Owned, leased, corporate housing and other revenues inched up 3% to $224 million attributable to an increase in credit card and residential branding fees as well as higher termination fees.
In the first quarter, RevPAR for worldwide comparable system-wide properties grew 4.6%, driven by a 3.8% rise in the average daily rate (:ADR). International comparable systemwide RevPAR climbed up 4.1% with the rise in ADR and occupancy. Following a 4.2% rise in the ADR, comparable system-wide RevPAR in North America leaped 4.8%.
Adjusted operating margin in the quarter expanded 410 basis points (bps) to 38% with better pricing and cost effective strategy.
Update on Hotel Rooms
During the first quarter, 37 properties with 13,982 guestrooms were added to Marriot’s existing hotel portfolio. The company also divested 11 properties. Currently, lodging group and timeshare resorts at Marriott were 3,822 and 663,000 properties, respectively. Nearly 800 properties with over 135,000 rooms are either under development or already under construction or undergoing conversion from other brands.
Share Repurchase
In the reported quarter, the company has bought back 5.4 million shares worth $212 million. At the end of the quarter, nearly 26.2 million shares were left to purchase under the current share repurchase program.
Guidance
For second-quarter 2013, Marriot’s total fee revenue will be between $405 million and $415 million and earnings per share will be between 55 cents and 59 cents.
The company estimates that North American comparable system-wide RevPAR will be up 5% to 7%, whereas the same will increase only 2% to 4% outside North America. Moreover, worldwide comparable system-wide RevPAR is expected to surge 4%-6%.
The company projects operating income to be within the $275 million and $295 million range.
Marriott has raised its guidance for 2013. Earnings per share for 2013 are now expected in the range of $1.93 - $2.08, up from the previous estimate of $1.90 - $2.05. The company now forecasts fee revenues to be within $1.53 billion and $1.58 billion in 2013, up nearly 9% to 15% year over year.
Operating income will be within the range of $990 million and $1,060 million, up from the prior guidance of $985 million and $1,055 million.
For 2013, the company projects comparable system-wide RevPAR will be up 4.5% to 7% in North America, 3% to 5% outside North America and 4% to 7% worldwide, on a constant dollar basis.
Our Take
Marriott is consistently growing with its strong pipeline, significant international exposure and buyback strategy. Continuous rise in the RevPAR in North America indicates that the company’s lodging business in the region is in a revival mode. Marriott is poised to benefit from low supply growth in North America given an increased demand scenario both in corporate and in leisure business lines.
In addition, Marriott appears to be highly optimistic about the acquisition of the hotel management company, Gaylord brand. It will strengthen Marriott’s position within the group bookings segment in the U.S.
However, the weak economic conditions in Europe and the slowdown in China continue to be headwinds. Moreover, as the hotel industry is cyclical in nature and is highly dependent on the overall health of the U.S. economy, the budget sequestration, effective since Mar 1, 2013, is expected to dampen growth prospects in North America.
A leading hospitality company, Wyndham Worldwide Corporation’s (WYN) earnings in the first quarter beat the Zacks Consensus Estimate but its revenues were in line with the same. Another hotelier, Starwood Hotels & Resorts Worldwide Inc. (HOT), surpassed the Zacks Consensus Estimate for both earnings and revenues.
Marriott currently retains a Zacks Rank #3 (Hold). Another hotelier, which is worth considering at the moment includes Home Inns & Hotels Management Inc. (HMIN) carrying a Zacks Rank #1 (Strong Buy).
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