Marriott International (MAR) has reported first quarter earnings of 22 cents per share, 2 cents ahead of the Zacks Consensus Estimate of 20 cents. Results were also above the company’s guidance of 15 cents to 21 cents issued at the time of the fourth quarter earnings release back on February 11, 2010.

In the year-ago quarter, Marriott had incurred a loss of $23 million or 6 cents. However, excluding restructuring costs and other charges, adjusted earnings in the year-ago period reached 24 cents. Therefore, compared to the prior-year’s adjusted earnings, the earnings in the reported quarter declined 8%.

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.

However, management expects higher room rates by the end of this year. Also, the demand for hotels in international markets is also stronger than in the U.S., particularly in Europe, South America and Asia.

Marriott’s total revenue was $2.6 billion, up 5% year-over-year. The company continues to experience an improvement in revenue per available room (RevPAR).

Marriott has also issued its guidance for the second quarter and full year 2010. While the second quarter guidance is above the Zacks Consensus Estimate, the full-year guidance is in line.

Inside the Headline Numbers

Base management and franchise fees increased 1%, while incentive management fees were down 7% from the prior year. Owned, leased, corporate housing and other revenues increased 4%, and adjusted Timeshare sales and services revenue grew 26%.

The 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 (adjusted basis) to $2.5 billion. Margins remained under pressure with 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.

Marriott has also reported an increase in total debt to $3.3 billion at the end of the reported quarter, compared with $2.3 billion at year-end 2009. This increase reflected a $1.0 billion debt associated with securitized Timeshare mortgage notes.


For the second quarter, Marriott expects earnings of 25 cents to 29 cents on fee revenues of $275 million to $285 million. The Zacks Consensus Estimate is 23 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 a share on fee revenue between $1.15 billion to $1.18 billion. The Zacks Consensus Estimate is 95 cents. 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.

Expansion Plans

Marriott expects to open 25,000 to 30,000 rooms in 2010. The company announced its plan to double its number of properties in Europe by 2015. Currently, the company has 174 hotels in 24 countries in Europe. The execution of this expansion plan would result in an increase of its room portfolio from 40,000 to 80,000 rooms by 2015.

The expansion in Europe is a strategic fit, given the slow recovery of the U.S. hotel industry. Additionally, the expansion in Europe provides the company with the opportunity to convert a number of independent hotels; growth, therefore, should be faster.

Recently, Marriott has announced its plan to further explore the Indian hotel market (by adding 29 properties). The company currently manages 11 hotels in India, represented by five brands. It expects to complete the construction and open all 29 properties by the end of 2013. This would almost quadruple the company’s current portfolio in India.

Marriott joins other hoteliers such as Starwood Hotels & Resorts Worldwide Inc. (TRV) and Hyatt Hotels Corp. (H), all of whom have recently announced plans to expand their Indian businesses.

The market is reacting positively to the earnings announcement and the shares are trading at a premium in the pre-market session.
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