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Marriott (MAR) Tops Q2 Earnings; Stock Down on View Cut

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Marriott International Inc. (MAR - Free Report) posted robust second-quarter 2016 results, wherein both earnings and revenues beat the Zacks Consensus Estimate.

However, the company’s shares declined nearly 1.5% in afterhours trading on Jul 27, mirroring investor concerns surrounding the company’s guidance cut for full-year 2016.

Meanwhile, we note that Marriott has inked a definitive agreement to purchase Starwood Hotels & Resorts Worldwide Inc. , which will lead to the creation of the world's largest hotel company. Marriott also announced that it is on track to complete the pending acquisition in the coming weeks.

Earnings and Revenue Discussion

Adjusted earnings per share of $1.03 beat the Zacks Consensus Estimate of 98 cents by 5.1% and also rose 18% year over year. Also, earnings were above management’s guided range of 96 cents to $1.00. The upside reflects improved revenue per available room (RevPAR) and strong margins.

Marriott International Inc. (MAR - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Total revenue increased 5.8% year over year to $3.90 billion. Growth in franchise fees, incentive management fees and owned, leased and other revenue, was partially offset by a decline in base management fees.

Further, revenues beat the Zacks Consensus Estimate of $3.86 billion by 1.1%.

RevPAR & Margins

Increase in demand and occupancy rate led to RevPAR growth. In the second quarter, RevPAR for worldwide comparable system-wide properties grew 2.9% (up 2.3% in actual dollars), driven by a 1.9% rise in average daily rate (ADR) and 0.8% growth in occupancy. However, the figure was below management’s expectation of 3–5% growth.

Comparable system-wide RevPAR in North America grew 3.2% (up 3.1% in actual dollars). Both ADR and occupancy rate inched up 2.2% and 0.8%, respectively, on a year-over-year basis.

International comparable system-wide RevPAR inched up 1.9% (down 0.8% in actual dollars) in the second quarter of 2016.

Adjusted EBITDA was $494 million, up 8.1% year over year, supported by revenue growth.

Worldwide comparable company-operated house profit margin increased 60 basis points (bps) in the second quarter, attributable to higher room rates, improved productivity and lower utility costs. Also, North American comparable company-operated house profit margins increased 100 bps. However, house profit margins for comparable company-operated properties outside North America declined 10 bps, hurt by lower house profit margins in the Middle East and Africa region.

Total expenses increased 5.8% year over year to $3.51 billion owing to higher reimbursement costs, general, administrative and other costs.

General, administrative, and other expenses were $154 million, up 1.3% from the year-ago quarter. Expenses increased largely due to higher administrative costs and unit growth.

MARRIOTT INTL-A Price, Consensus and EPS Surprise

MARRIOTT INTL-A Price, Consensus and EPS Surprise | MARRIOTT INTL-A Quote

Third-Quarter 2016 Guidance

Marriott expects comparable system-wide RevPAR to increase 3–4% in North America, outside North America and worldwide.

Moreover, the company expects fee revenues between $495 million and $500 million. Operating income is estimated in the range of $370--$375 million while adjusted EBITDA is projected at $476–$481 million. Meanwhile, general, administrative and other expenses are expected to be roughly $160 million.

Notably, Marriott's outlook does not include the impact of the pending Starwood acquisition.

Fourth-Quarter 2016 Outlook

Marriott expects comparable system-wide RevPAR to increase 1–3% in North America, 3–4% outside North America and 2–3% worldwide.

Moreover, the company expects fee revenues between $485 million and $490 million. Operating income is expected in the range of $361--$371 million while adjusted EBITDA is projected to be between $461 million and $471 million. Meanwhile, general, administrative and other expenses are expected to be roughly $170 million.

2016 View

The company lowered its comparable system-wide RevPAR expectations on a constant dollar basis to growth of 3% in North America, outside North America and worldwide. Notably, the company had earlier guided for RevPAR growth of 3% to 5%.

Also, for full-year 2016, the company anticipates gross room additions of roughly 7.5%, lower than 8% expected earlier because of postponed openings for some hotels in North America, as well as the Middle East and Africa.

Meanwhile, the company slashed its adjusted EBITDA guidance to the range of $1,889 million to $1,904 million (earlier $1,900 million to $1,965 million). The guidance cut came on the back of slower total fee revenue growth as well as lower relicensing and branding fees.

Zacks Rank & Stocks to Consider

Marriott presently has a Zacks Rank #4 (Sell). Better-ranked stocks in the sector include Intrawest Resorts Holdings, Inc. (SNOW - Free Report) and Marriott Vacations Worldwide Corp. (VAC - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy).

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