Marriott International Inc. (MAR) has reported fourth quarter 2010 adjusted earnings of 39 cents per share, above the Zacks Consensus Estimate of 36 cents. Earnings were at the higher end of the company’s guidance of 33 cents to 36 cents, and recorded a substantial increase of 22% year over year.

On a GAAP basis, including non-cash impairment and other charges and benefit related to the settlement with the IRS, Marriott recorded earnings of 46 cents compared with 28 cents in the year-ago quarter.

The results were driven by stronger corporate and leisure demand, resulting in a higher average daily room-rate. Total revenue summed up to $3.64 billion, up 8% year over year and also surpassed the Zacks Consensus Estimate of $3.59 million.

The company’s full-year adjusted earnings per share were $1.15, soaring 24% from the year-ago period. Revenues were $11.7 billion in full fiscal 2010, representing a year-over-year growth of 7.0%.

Inside the Headline Numbers

Base management and franchise fees increased 11% year over year to $314 million, backed by higher revenue per available room (RevPAR) and fees from new hotels. Incentive management fees spiked 27% from the year-ago quarter at $75 million. Owned, leased, corporate housing and other revenues grew 2% to $342 million, while adjusted Timeshare sales and services revenues fell 1% to $372 million.

RevPAR for worldwide comparable company-operated properties grew 8.1% (up 7.6% on a constant-dollar basis) during the quarter.

International company-operated RevPAR upped 10.1% year over year (up 7.9% on a constant-dollar basis) with a 3.9% hike in average daily rate (rose 1.8% using constant dollars). RevPAR was strongest in the China region with a rise of 33.0%.

In North America, comparable company-operated RevPAR rose 7.5%, with average daily rate up 1.8%. RevPAR for comparable company-operated North American full-service and luxury hotels escalated 7.0%, driven by a 2.6% rise in average daily rate. RevPAR for comparable company-operated North American limited service hotels climbed 8.0%, driven by a 1.4% upside in average daily rate.

Worldwide comparable company-operated house profit margins were up 100 basis points (bps), driven by higher occupancy, rate increases and strong productivity. General Administrative and other expense expanded 16% to $240 million and interest expense leaped 47% year over year to $50 million.

Update on Hotel Rooms

During the quarter, Marriott added 35 new properties and exited 8 properties. In the fourth quarter, Marriott opened 8,500 rooms including nearly 2,100 rooms in international markets.

At year-end, Marriott’s pipeline of hotels under construction internationally, pending conversion or approved for development, totaled nearly 105,000 rooms with 45,000 rooms outside North America. The pipeline includes AC Hotels by Marriott, a new brand with over 9,000 rooms expected at launch in 2011.

The company expects to open 35,000 rooms in 2011.

Financials

At the end of 2010, total debt was $2,829 million and cash balances summed up to $505 million, compared with $2,298 million in debt and $115 million of cash at year-end 2009, respectively.

In 2010, the company repurchased 1.5 million shares for $57 million and as of December 31, 2010, the company has $23.8 million remaining under its share repurchase authorization.

Outlook

For the first quarter of 2011, Marriott expects earnings of 24 cents to 28 cents on total fee revenue projection of $280 million to $290 million.

The company expects 2011 to be more promising than 2010, as strong demand and pricing continue. Comparable system-wide RevPAR on a constant dollar basis is expected to grow in the range of 6% to 8%. Total fee revenue is expected to be in the range of $1.31 billion to $1.34 billion and earnings guidance in the range of $1.35 to $1.45.

The company also plans to split its business into two separate companies. Marriott will spin out the timeshare operations into a separate company and will focus on the lodging management and franchise business.

Both the companies will have separate boards of directors and will focus on opportunities in their respective industries. Marriott expects to complete the spin-off before the end of 2011. Marriott will continue to receive franchise fees from the timeshare company’s use of the Marriott and Ritz-Carlton brands.

Our Take

We believe Marriott is poised to benefit from the reviving economy. Marriott is aggressively expanding its footprint in the Asia-Pacific region particularly China and India, where demand is strong helped by the pace of economic recovery.  In the developed market, the company should benefit from limited supply. Pricing power is also returning to the hotel owners.

Additionally, Marriott’s strong pipeline, significant international exposure, solid balance sheet, lower operating cost structure, favorable pricing and increased market shareaugur well for its business.

Marriott will also benefit from the spin-off of its struggling timeshare business. The revenue from the timeshare business continued to fall in 2010, as it was severely impacted by the economic slowdown.

One of Marriott’s primary competitors, Starwood Hotels & Resorts Worldwide Inc. (HOT) reported its fourth-quarter adjusted earnings of 52 cents from continuing operations, ahead of the Zacks Consensus Estimate of 39 cents and the year-earlier quarter’s earnings of 51 cents. The quarter’s better-than-expected earnings were aided by an increase in demand for hotels.

 
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