Marriott International Inc. (MAR) reported second quarter 2011 earnings of 37 cents per share, in line with the Zacks Consensus Estimate, but up 19% year over year. Earnings were also within the company’s guided range of 34 cents to 38 cents.
The year-over-year results improved based on the company’s growth in the international market as well as strong demand in the North American market attributable to limited supply growth. Total revenue aggregated $2.97 billion, up 7% year over year.
Inside the Headline Numbers
Base management and franchise fees increased 12% year over year to $269 million, attributable to higher revenue per available room (RevPAR) and fees from new hotels. Incentive management fees spiked 9% from the year-ago quarter to $50 million. Owned, leased, corporate housing and other revenues, however, dropped 2% to $249 million, while Timeshare sales and services revenues remained flat year over year at $288 million.
RevPAR for worldwide comparable company-operated properties grew 6.8% (up 7.7% on actual-dollar basis) during the quarter. However, the growth was impacted by disturbances in the Middle East and Japan market and weaker demand in the Washington, D.C. market.
International company-operated RevPAR climbed 7.3% year over year (up 11.9% on an actual-dollar basis) with a 5.8% increase in average daily rate (rose 10.4% using actual dollars). However, excluding the impact of the political turmoil in Middle East and earthquake in Japan, international comparable RevPAR rose 12.4% (up 17.5% on an actual-dollar basis).
In North America, comparable company-operated RevPAR rose 6.6%, with the average daily rate up 3.1%. RevPAR for comparable company-operated North American full-service and luxury hotels escalated 6.0%, driven by a 4.0% rise in average daily rate. RevPAR for comparable company-operated North American limited service hotels climbed 7.2%, driven by a 2.8% upside in average daily rate.
North America comparable company-operated house profit margins expanded 100 basis points (bps), driven by higher occupancy and rate increases. International comparable company-operated house profit margins jumped 160 bps, excluding prevailing challenges in the Middle East and Japan market. General, administrative and other expenses increased 12% to $159 million while interest expenses declined 16% year over year to $37 million.
Update on Hotel Rooms
During the quarter, Marriott added 32 new properties and divested 10 properties. At the end of the second quarter, Marriott’s pipeline of hotels under construction in the international market (awaiting conversion or approved for development), totaled approximately 635 properties with over 100,000 rooms.
The company expects to add 35,000 rooms in 2011.
Financials
At the end of the second quarter, total debt was $2.9 billion while cash balances totaled $117 million, compared with $2.8 billion of debt and $505 million of cash at the end of 2010, respectively.
In the reported quarter, the company repurchased 10.6 million shares for $375 million and as of June 17, 2011, the company had 30.4 million shares remaining under its share repurchase authorization.
Outlook
For the third quarter of 2011, Marriott expects earnings of 25 cents to 29 cents on total fee revenue projection of $285 million to $295 million.
Marriott has trimmed the higher-end of earnings and revenue guidance for 2011 due to prevailing challenges in some geographical regions. The company currently projects earnings in the range of $1.35 to $1.43 compared with the previous estimate of $1.35 to $1.45. Total fee revenue is expected in the range of $1.31 billion to $1.33 billion, down from the previous estimate of $1.31 billion to $1.34 billion.
Marriott continues to estimate an upside of 6% to 8% in the North American comparable systemwide REVPAR. Excluding the Middle East and Japan market, comparable system-wide RevPAR on a constant dollar basis is expected to grow in the range of 6% to 8% worldwide and 7% to 9% in the international market.
The company remains on track to spin off its Timeshare business into a new publicly traded company in the form of a tax-free dividend to its existing shareholders. The transaction is expected to be completed by year-end 2011. Marriott will, however, 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 given the pace of economic growth in these two countries. 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. However, in the near term, the company’s business in the international market will be affected by the political turmoil in the Middle East and earthquake in Japan.
The Zacks Consensus Estimates for 2011 and 2012 are pegged at $1.41 and $1.78, respectively.
One of Marriott's primary competitors, Starwood Hotels & Resorts Worldwide Inc. (HOT) is slated to release its second quarter 2011 results on July 28, 2011.
STARWOOD HOTELS (HOT): Free Stock Analysis Report
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