Marriott International Inc. (MAR), a leading worldwide hospitality company primarily focusing on property management and franchising, is slated to release its second-quarter 2010 results on Wednesday, July 14. The current Zacks Consensus Estimate for the second quarter is 28 cents per share, representing an annualized growth of 23.39%.
With respect to earnings surprises, over the trailing four quarters, Marriott International has outperformed the Zacks Consensus Estimate for all the four quarters. The average earnings surprise was a positive 14.5%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.
Previous Quarter Performance
Marriott International reported first quarter 2010 earnings of 22 cents per share, 2 cents ahead of the Zacks Consensus Estimate of 20 cents. Marriott’s total revenue was $2.6 billion, up 5% year over year.
Results reflected higher-than-expected revenues as a result of the recovery in business travels. Leisure demand also remained solid. While the company has experienced an increase in occupancy levels, room rates were still below prior-year levels.
Base management and franchise fees increased 1%, while incentive management fees were down 7% from the year-ago period. Owned, leased, corporate housing and other revenues increased 4%, and adjusted Timeshare sales and services revenues grew 26%.
The revenue per available room (RevPAR) for worldwide comparable company-operated properties remained unchanged (down 1.0% on a constant-dollar basis), while that for worldwide comparable systemwide properties fell 0.7% (down 1.3% on a constant-dollar basis).
International company-operated RevPAR increased 5.8% (up 1.5% on a constant-dollar basis) with a 4.5% decrease in average daily rate (down 8.3% using constant dollars).
In North America, comparable company-operated RevPAR dropped 1.9%. RevPAR at the company’s comparable company-operated North American full-service and luxury hotels was down 1.2%, driven by a 7.8% decline in average daily rate.
However, expenses were up 3% year over year (on an adjusted basis) to $2.5 billion. Margins remained under pressure with an increase in occupancy and declining room rates. Worldwide comparable company-operated house profit margins fell 110 basis points (bps).
Though house profit margins for comparable company-operated properties outside North America increased 40 bps, the North American comparable company-operated house profit margins were down 180 bps year over year.
Outlook
For the second quarter, Marriott International expects earnings of 25 cents to 29 cents per share on fee revenues of $275 million to $285 million. The current Zacks Consensus Estimate for the quarter is 28 cents. Comparable system-wide RevPAR on a constant dollar basis is expected to increase 4% to 6% in North America and 8% to 10% outside North America.
For full year 2010, the company anticipates earnings between 95 cents and $1.05 per share on fee revenues between $1.15 billion to $1.18 billion. The current Zacks Consensus Estimate for fiscal 2010 is $1.04. Comparable system-wide RevPAR on a constant dollar basis is anticipated to increase 3% to 6% in North America and 4% to 7% outside North America.
Estimates Revisions Trend
Estimates have moved up in the last 30 days, implying that the analysts do see a meaningful catalyst for the time being. The current Zacks Consensus Estimate is $1.04 for 2010, reflecting a year-over-year growth of 8.62% and $1.32 for 2011, reflecting a year-over-year growth of 26.92%.
Agreement of Estimate Revisions
As Marriott is experiencing an increase in room rates, in the last 30 days, 3 out of 18 analysts covering the stock increased their third quarter, fiscal 2010 and fiscal 2011 estimates. None of the analysts made a downward revision to their forecasts.
Magnitude of Estimate Revisions
There has been no change in the last 60 days in the earnings estimate of 28 cents for the second quarter as seen from the magnitude of the Consensus Estimate trend. Therefore, the analysts expect the company to report in line.
Following the first-quarter earnings release, earnings estimates for 2010 and 2011 improved to $1.04 and $1.30 from the previous estimates of 95 cents and $1.18 respectively. The analysts have based their upward revision on stronger RevPAR growth and improvement in the lodging industry.
For fiscal 2010, there has been no movement in estimates in the past 60 days. Analysts expect the company to report in line and post sequentially improving results for the remainder of the year.
However for fiscal 2011, earnings estimate was raised to $1.32 in the past 30 days but was reduced by one cent in the last 7 days. Earnings are now expected at $1.32 per share.
Neutral Rating Maintained
We have a Neutral rating on Marriott International as it has a substantial development pipeline and is poised to benefit from the increase in demand for hotels, going forward. The demand for hotels and the pace of recovery in the international market are greater than in the U.S and Marriott should benefit from its international exposure. Moreover, the company has a strong balance sheet. We believe Marriott International should report second quarter results at the higher end of its guidance as the lodging industry is showing signs of recovery evidenced by the improvement in RevPAR.
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