Marriott stock drops on weak outlook, despite Q4 earnings beat

Shares of Marriott International (MAR) are declining Tuesday, despite beating fourth-quarter earnings estimates. The company's 2024 profit outlook missed analyst projections.

Michael Bellisario, Senior Research Analyst at Baird, joins Yahoo Finance Live to discuss Marriott's outlook. He's "not totally surprised" by the stock dropping given strong gains leading into earnings. However, underlying travel demand remains "good to still pretty darn solid" in his view.

While leisure trends raise "questions" with slower growth, Bellisario notes corporate travel - a major profit driver - is strong, benefiting Marriott greatly. Geographically, he points to Asia and US urban markets as areas that are still recovering from the pandemic.

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Editor's note: This article was written by Angel Smith

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Video Transcript

- Well, Marriott International reporting better than expected earnings for the fourth quarter, but a miss on revenue and lower than expected profit guidance is overshadowing the beat on the bottom line. Shares of Marriott, MAR is the ticker symbol there, they're down by about 4.7%. Here to discuss, we've got Baird Senior Research Analyst Michael Bellisario. Michael, great to have you here with us today. First and foremost, I want to get your read through on this report and what investors perhaps are soured on within this particular print.

MICHAEL BELLISARIO: Thanks. Good morning. I think the big thing, you think about the market being down a percent, and Marriott's 2024 EPS guidance being about 3% below street expectations. You add that together, that's 4%. That's kind of roughly what the stock is down.

So not totally surprised to see the stock weaker. I think when you peel back all the moving pieces that they had with a bunch of different line items in the fourth quarter, underlying trends are somewhere between good to still pretty darn solid.

We like to say people are traveling. They're just traveling to different markets on different days of the week for different purposes. So travel is still strong. And really, some of the weakness just has to do with expectations, the stock being at an all time high and 27 times earnings leading up to the print.

- So Michael, when you divvy up the pie in terms of the expectations that the markets had going into this versus some of the fundamental subsectors of what you're seeing within the actual business, where do you think that balance lies?

MICHAEL BELLISARIO: Well, there's some questions around leisure travel and still the sustainability of demand there, especially given all the headlines. But leisure demand remains solid in the aggregate. That's the best performing customer segment, albeit growth there is the slowest.

Where you're seeing the recovery still unfold as Asia, China in particular, and then in the US, urban markets. Group, convention business is still pretty strong. Companies are spending money. You're probably traveling a little bit less for the one day trip, and you're seeing more of this group and small meeting demand. And that's really robust, and that's benefiting Marriott's portfolio.

- Yeah. That's a great point. And we were speaking with the Hilton CEO Chris Nassetta about that last week, that business transient is how they classify it the biggest segment of their business and particularly where he expects that to strengthen. Is that something that you expect to be a rising tide for the overall industry, and who is the largest winner in that particular rebound in corporate travel, especially as we're kind of looking across the margins that would then trickle back through to some of the accommodation space?

MICHAEL BELLISARIO: Well, business travel historically has been the biggest contributor to hotel profitability. It's a little bit smaller now because leisure has gotten bigger, and business is still recovering. But think about when someone's traveling on a corporate expense. You're a bit of a price taker. You book one day, three days, five days ahead of time, and you go to the city you're going to because you have to. So it's highly profitable business.

And business travel, the expectation is that it will continue to steadily recover. And Marriott benefits from that. Marriott, compared to some of the other global hotel brand peers, more hotels in urban gateway markets, more bigger box convention and group-centric hotels too. So they're poised to benefit and capture a disproportionate share of that demand as it continues to recover in '24.