Marriott International Inc. (MAR) has reported first quarter 2011 earnings of 26 cents per share, a penny below the Zacks Consensus Estimate, but up 18% year over year. Earnings were also within the company’s guidance range of 24 cents to 28 cents. The results were below expectations due to lower-than-expected demand in the larger hotel markets in North America.
However, year-over-year results improved driven by global demand for lodging, translating into a higher average daily room-rate. Total revenue aggregated $ 2.78 billion, up 6% year over year, but missed the Zacks Consensus Estimate of $ 2.80 billion.
Inside the Headline Numbers
Base management and franchise fees increased 10% year over year to $ 237 million, backed by higher revenue per available room (RevPAR) and fees from new hotels. Incentive management fees spiked 5% from the year-ago quarter to $ 42 million. Owned, leased, corporate housing and other revenues dropped 2% to $ 224 million, while Timeshare sales and services revenues fell 3% to $ 276 million.
RevPAR for worldwide comparable company-operated properties grew 6.5% (up 6.6% on a constant-dollar basis) during the quarter. However, the growth was lower than the company’s projection of 7% due to weaker demand in the Washington, D.C. and New York markets.
International company-operated RevPAR climbed 11.2% year over year (up 11.4% on a constant-dollar basis) with a 5.9% hike in average daily rate (rose 6.0% using constant dollars). RevPAR rose 17.2% in the Asia Pacific market and 14.4% in the Caribbean and Latin America.
In North America, comparable company-operated RevPAR rose 5.8%, with average daily rate up 2.4%, RevPAR for comparable company-operated North American full-service and luxury hotels escalated 4.9%, driven by a 3.0% rise in average daily rate. RevPAR for comparable company-operated North American limited service hotels climbed 6.5%, driven by a 2.4% upside in average daily rate.
Worldwide comparable company-operated house profit margins expanded 30 basis points (bps), driven by higher occupancy and rate increases, partially offset by higher incentive compensation. General , administrative and other expenses increased 15% to $ 159 million and interest expenses declined 9% year over year to $ 41 million.
Update on Hotel Rooms
During the quarter, Marriott added 100 new properties and exited 6 properties. Moreover, 68 AC Hotels by Marriott, a new brand also joined the system.
At the end of the first quarter, Marriott’s pipeline of hotels under construction internationally (awaiting conversion or approved for development), totaled nearly 95,000 rooms.
The company expects to open 35,000 rooms in 2011.
Financials
At the end of the first quarter, total debt was $ 2.9 billion and cash balances summed up to $ 144 million, compared with $ 2.8 billion of debt and $ 505 million of cash at year-end 2010, respectively.
In the reported quarter, the company repurchased 7.8 million shares for $ 300 million and as of April 19, 2011, the company had $ 10.5 million remaining under its share repurchase authorization.
Outlook
For the second quarter of 2011, Marriott expects earnings of 34 cents to 38 cents on total fee revenue projection of $ 320 million to $ 330 million.
The company expects 2011 to be more promising than 2010, as strong pricing and demand continues. Comparable system-wide RevPAR on a constant dollar basis is expected to grow in the range of 6% to 8% worldwide, 5% to 7% in the international market and 6% to 8% in North America. Total fee revenue is expected to be in the range of $ 1.30 billion to $ 1.34 billion and earnings guidance in the range of $ 1.35 to $ 1.45.
The company continues to expect to spin off its Timeshare business into a new publicly traded company in the form of a tax-free dividend to its existing shareholders.
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 growth. In the developed market, the company should benefit from limited supply in the industry. Hotel owners are also regaining their pricing power.
Additionally, Marriott’s strong pipeline, solid balance sheet, lower operating cost structure, favorable pricing and increased market share augur well for its business.
One of Marriott's primary competitors, Starwood Hotels & Resorts Worldwide Inc. (HOT) is slated to release its first quarter 2011 results on April 28, 2011.
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