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Why Is Marriott (MAR) Down 4.1% Since the Last Earnings Report?

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About a month has gone by since the last earnings report for Marriott International (MAR - Free Report) . Shares have lost about 4.1% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Marriott Tops Q2 Earnings & Revenue Estimates

Marriott posted better-than-expected second-quarter 2017 results wherein both the bottom line and the top line beat the Zacks Consensus Estimate.

Earnings and Revenue Discussion

Adjusted earnings per share (EPS) of $1.13 per share surpassed the Zacks Consensus Estimate of $1.02 by 10.8%. Also, the figure witnessed a 34.5% increase from combined adjusted EPS of $0.84 in the year-ago quarter. In fact, the bottom line came above management’s guided range of $0.99 to $1.03.

Notably, combined second-quarter 2016 results assume Marriott's acquisition of Starwood and Starwood's sale of its timeshare business that completed on Jan 1, 2015 along with some other adjustments.

Total revenue almost remained flat year over year at nearly $5.80 billion but topped the Zacks Consensus Estimate of $5.12 billion by over 13%.

Excluding the impact of Marriott's acquisition of Starwood and Starwood's sale of its timeshare business on second-quarter 2016 results, the top line in the quarter increased a significant 48.5% year over year. This, in turn, reflects the positive impact of Starwood acquisition on second-quarter 2017 revenues.

RevPAR & Margins

In the quarter, revenue per available room (RevPAR) for worldwide comparable system-wide properties increased 2.2% in constant dollar (up 1.4% in actual dollars), driven by 0.7% growth in occupancy and a 1.2% rise in average daily rate (ADR). In fact, the reported figure came within management’s guided range of an increase of 1% to 3% on a constant dollar basis.

Comparable system-wide RevPAR in North America grew 0.9% in constant dollars (up 0.8% in actual dollars). Though occupancy rate declined 0.3%, ADR witnessed an increase of 1.3%. Management had expected the same to be flat to up 2% for the quarter.

In constant dollar, international comparable system-wide RevPAR rose 5.8% (up 3.1% in actual dollars) in the second quarter of 2017. Both occupancy rate and ADR witnessed a rise of 3.1% and 1.1%, respectively. Also, the figure came above management’s guided range of a rise of 3% to 5% on a constant-dollar basis.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $834 million, up 8% year over year, from combined adjusted EBITDA in the year-ago quarter.

Worldwide comparable company-operated house profit margin increased 50 basis points (bps) in the reported quarter. The uptick can be attributable to higher RevPAR and synergies from the Starwood acquisition, including procurement savings. However, North American comparable company-operated house profit margins decreased 10 bps. Meanwhile, house profit margins for comparable company-operated properties outside North America rose 140 bps.

Total adjusted expenses decreased 1.4% year over year to $5.15 billion mainly due to lower general, administrative and other expenses.

General, administrative, and other expenses were $226 million, down 8.5% from the year-ago quarter, primarily due to general administrative cost savings. Notably, the figure was just above the management’s expected range of $220 million to $225 million.

Third-Quarter 2017 View

Marriott's outlook for third-quarter, fourth-quarter and full-year 2017 is for the combined company and does not include merger-related costs.

For the third quarter, earnings per share are estimated between $0.96 and $0.99.
    
Marriott projects comparable system-wide RevPAR to be roughly flat in North America on a constant dollar basis. RevPAR for worldwide comparable system-wide properties is projected to inch up in the range of 1% to 2%. Outside North America, the company expects the same to increase in the 3% to 5% band.

Adjusted EBITDA is likely to be in the range of $770 to $790 million, reflecting tough comparisons caused by the Olympics and the shift in the Jewish holidays year over year. Meanwhile, the company expects fee revenues between $810 million and $825 million. Operating income is projected in the range of $595 to $615 million while general, administrative and other expenses are anticipated between $215 million and $220 million.

Fourth-Quarter 2017 Outlook

For the fourth quarter, earnings per share are estimated between $0.96 and $1.05.

Marriott expects comparable system-wide RevPAR to increase in the range of 1% to 3% on a constant dollar basis in North America and worldwide. Outside North America, the company expects the same to inch up in the 2–4% band.

Moreover, the company anticipates fee revenues between $804 million and $849 million. Operating income is projected in the range of $594 to $644 million while general, administrative and other expenses are expected between $229 million and $234 million.

2017 View Updated

For full-year 2017, Marriott now anticipates earnings in the band of $4.06 to $4.18 per share, up from the earlier guided range of $3.92 to $4.09.

Marriott expects comparable system-wide RevPAR to inch up 1-2% in North America (earlier 1-3% rise), climb 3-5% outside North America (earlier 2-4% increase) and rise 1-3% worldwide (same as earlier), on a constant dollar basis.

Additionally, the company projects fee revenues between $3,245 million and $3,305 million (earlier $3,225-$3,295 million). The increase reflects better-than-expected fees in the second quarter.

Operating income is anticipated in the range of $2,420 million to $2,490 million (earlier $2,405-$2,495 million), while adjusted EBITDA is projected to be between $3,131 million and $3,201 million (earlier $3,100-$3,195 million). Meanwhile, general, administrative and other expenses are still expected to be in the band of $880 million to $890 million.

The company also continues to anticipate net room additions of 6% in 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been seven revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum.

VGM Scores

At this time, the stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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