Marriott International, Inc. (MAR - Free Report) reported better-than-expected fourth-quarter 2017 results.
Adjusted earnings per share of $1.12 surpassed the Zacks Consensus Estimate by 12 cents and increased 31.8% year over year. The bottom line also came ahead of the guided range of 98 cents to $1. Total revenues of $5.9 billion outpaced the consensus mark by $248 million and improved 7.7% from the year-ago quarter.
Marriott International Revenue (TTM)
Strong RevPAR gains, room growth and property-level margin improvement drove the company’s results. Notably, with its owners and franchisees, Marriott opened more than 76,000 rooms in 2017 to cross the 1.25 million total room mark.
Management remains optimistic about achieving significant cost synergies on faster integration of Starwood. We believe that Marriott is poised to grow on the back of the Starwood acquisition, arresting brand position, an increased demand for travel and significant international exposure.
In a year’s time, shares of Marriott have rallied a whopping 62.3% outperforming the industry’s 40.4% gain.
Let’s delve deeper to find out the factors likely to have a bearing on the company’s fourth-quarter results.
RevPAR & Margins
In the quarter under review, revenue per available room (RevPAR) for worldwide comparable system-wide properties increased 4.6% in constant dollar (up 5.3% in actual dollars) driven by 1.8% growth in occupancy and 2% improvement in average daily rate (ADR). In fact, the reported figure came above management’s guided range of an increase of 2% to 3% on a constant dollar basis.
Comparable system-wide RevPAR in North America grew 3.9% in constant dollars (up 4.1% in actual dollars). Occupancy rate and ADR also witnessed an increase of 1.5% and 1.7%, respectively. Management had expected the same to rise in the 2-3% band on a constant-dollar basis.
In constant dollar, international comparable system-wide RevPAR rose 6.2% (up 8.4% in actual dollars). Both occupancy rate and ADR witnessed a rise of 2.4% and 2.7%, respectively. Also, the figure came above management’s guided range of 3% to 5% on a constant-dollar basis.
Notably, worldwide comparable company-operated house profit margin increased 80 basis points (bps) for full year 2017. The uptick was owing to higher RevPAR, solid cost controls, improved productivity and synergies from the Starwood acquisition. North American comparable company-operated house profit margins improved 40 bps as well. Meanwhile, house profit margins for comparable company-operated properties outside North America rose 130 bps.
Total adjusted expenses increased 7.5% year over year to $5.2 billion mainly owing to higher general, administrative and other expenses.
General, administrative and other expenses were $259 million, up 10.7% from the year-ago quarter. The figure was also above management’s projected range of $240 million to $245 million.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $808 million, up 7% year over year.
First-Quarter 2018 Outlook
Marriott plans to adopt Accounting Standards Update 2014-09, a new revenue standard, in the first quarter of 2018. Considering significant changes upon adoption of the new standard and migration to a single financial reporting platform, the company has provided a condensed guidance for the quarter. It will resume providing fulsome guidance from the second quarter of 2018.
Marriott expects comparable system-wide RevPAR to be flat to up 2% (on a constant-dollar basis) in North America and 1% to 3% worldwide. The guidance for fourth-quarter RevPAR growth in North America reflects the shift of the Easter holiday. Outside North America, the company expects the same to rise in the range of 3% to 5%.
The company anticipates realizing roughly $45 million gain in the quarter, resulting from the sale of the Sheraton Buenos Aires Hotel & Convention Center and Park Tower, a Luxury Collection Hotel.
Taking in to account the impacts of the new revenue standard, Marriott anticipates earnings in the band of $5.11 to $5.34 per share. The midpoint of the guided range is higher than the Zacks Consensus Estimate of $5.16.
Comparable system-wide RevPAR is expected to increase 1-2% in North America, 3-5% outside North America and improve 1-3% worldwide on a constant-dollar basis. While the company anticipates gross room additions of roughly 7%, room deletions are expected to lie between 1% and 1.5% for 2018.
Additionally, Marriott projects fee revenues between $3,535 million and $3,620 million including $360 million to $380 million of credit card branding fees. Incentive management fees are anticipated to increase at a low-single digit rate from $607 million in 2017.
While operating income is anticipated in the range of $2,590 million to $2,695 million, general, administrative and other expenses are envisioned in the $935 million to $945 million band.
Adjusted EBITDA is projected between $3,315 million and $3,420 million. All figures include impact of the new revenue standard.
Zacks Rank & Other Stocks to Consider
Hilton carries a Zacks Rank #2 (Buy).
Other top-ranked stocks in the hotel space include Choice Hotels (CHH - Free Report) sporting a Zacks Rank #1 (Strong Buy) as well as Intercontinental Hotels and Hilton (HLT - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Choice Hotels, Intercontinental Hotels and Hilton’s earnings for 2018 are projected to increase 20%, 30% and 26%, respectively.
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