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Marriott International Inc. (MAR - Analyst Report) reported third quarter 2011 earnings of 29 cents per share up 32% year over year. Earnings were also within the company’s guided range of 25 cents to 29 cents.

However, after accounting for other non cash charges of 73 cents the company reported a loss of 52 cents a share, reversing a year-ago profit of 23 cents a share.

The year-over-year results improved based on the company’s strong revenue per available room. Total revenue aggregated $2.97 billion, up 9% year over year.

Inside the Headline Numbers

Base management and franchise fees increased 12% year over year to $260 million, attributable to higher revenue per available room (RevPAR) at existing hotels, fees from new hotels and favorable foreign exchange rates. Incentive management fees spiked 38% from the year-ago quarter to $29 million.

Owned, leased, corporate housing and other revenues, jumped 15% to $254 million, while Timeshare sales and services revenues net of expenses, declined $20 million to $36 million due to the year-over-year unfavorable impact of a $15 million adjustment to the Marriott Rewards liability recorded in the year-ago quarter and, lower interest income on a smaller mortgage portfolio.

RevPAR for worldwide comparable systemwide properties grew 6.9% (up 15.8% on actual-dollar basis) during the quarter. However, the growth was impacted by disturbances in the Middle East and Japan market. Excluding the Middle East and Japan markets, worlswide comparable systemwide constant dollar REVPAR increased 7.4% (a 9.0% increase on actual dollar basis).

International company-operated RevPAR climbed 6.9% year over year (up 15.8% on an actual-dollar basis) with a 4.9% increase in average daily rate (rose 13.6% using actual dollars). However, excluding the impact in Middle East and Japan, international comparable RevPAR rose 9.2% (up 18.7% on an actual-dollar basis).

In North America, comparable systemwide RevPAR rose 6.9%, with the average daily rate up 3.3%. RevPAR for comparable company-operated North American full-service and luxury hotels escalated 6.5%, driven by a 3.7% rise in average daily rate. RevPAR for comparable company-operated North American limited service hotels climbed 7.3%, driven by a 3.2% upside in average daily rate.

North America comparable company-operated house profit margins expanded 130 basis points (bps), driven by higher occupancy and rate increases. International comparable company-operated house profit margins jumped 40 bps, excluding prevailing challenges in the Middle East and Japan market. General, administrative and other expenses increased 14% to $170 million while interest expenses declined by $2 million year over year to $39 million.

Update on Hotel Rooms

During the quarter, Marriott added 38 new properties and divested 5 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 650 properties with over 105,000 rooms.

The company expects to add more than 30,000 rooms in 2011 approximately 30,000 rooms in 2012.


At the end of the third quarter, total debt was $3.1 billion while cash balances totaled $830 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 18.0 million shares for $550 million and as of September 9, 2011, the company had 12.4 million shares remaining under its share repurchase authorization.


For the fourth quarter, the company estimates that North American comparable systemwide REVPAR will increase in the range of 6% to 8%.

Outside North America, the company anticipates fourth quarter 2011 comparable systemwide REVPAR on a constant dollar basis to increase 3% to 5%, or 5% to 7% excluding the Middle East and Japan markets.  

On a worldwide basis, the company expects fourth quarter 2011 comparable systemwide REVPAR on a constant dollar basis will increase 5% to 7%, or 6% to 8% excluding the Middle East and Japan markets.

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 in the fourth quarter 2011.

The company expects fourth quarter 2011 Timeshare contract sales will total $200 million to $210 million and Timeshare sales and services revenue, net of direct expenses, will total approximately $68 million to $73 million.

The company expects investment spending in 2011 to total approximately $500 million to $600 million, including $50 million to $100 million for maintenance capital spending.

The company expects full year 2011 adjusted EBITDA to total $1,112 million to $1,132 million.

The company expects full year 2011 adjusted EBITDA to total $1,112 million to $1,132 million.

Outlook for 2012

The company projects full year 2012 comparable systemwide REVPAR on a constant dollar basis to increase 3% to 7%, in North America, outside North America and worldwide.

The company expects to open approximately 30,000 rooms in 2012 as most hotels expected to open are already under construction or undergoing conversion from other brands.

The company forecasts fee revenue to total $1,420 million to $1,490 million.  The amount reflects no timeshare base fees but includes $63 million to $65 million of timeshare royalty fees.

2012 diluted EPS is expected to total $1.48 to $1.68.

The company expects general, administrative and other expenses to be in the range of $660 million to $675 million.

Our Take

We believe, 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.

Marriott's faces stiff competition from Intercontinental Hotels Group Plc. (IHG - Snapshot Report).

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