Hotel chain operator, Marriott International Inc. (MAR - Analyst Report) reported third quarter 2012 earnings of 44 cents per share, comfortably surpassing the Zacks Consensus Estimate of 40 cents and the year-ago quarter adjusted earnings of 29 cents per share. The earnings were also above the projected guidance of 39 cents to 41 cents.
Total revenue was $2,729 million in the second quarter, up 8% year over year from adjusted revenue of $2,519 million. The upside was led by a boost in pricing power, an 8% increase in domestic group revenue and a 6% rise in transient REVPAR.
Inside the Headline Numbers
Base management fees increased 12% over prior-year adjusted levels to $134 million while franchise fees increased 7% to $149 million, attributable to higher revenue per available room (REVPAR) at existing hotels and fees from new hotels. Incentive management fees jumped 24% to $36 million, but Owned, leased, corporate housing and other revenues dropped 21% to $200 million.
REVPAR for worldwide comparable system-wide properties grew 6.0% during the quarter. International comparable system-wide REVPAR climbed up 5.0% year over year with a 3.8% increase in average daily rate.
In North America, comparable system-wide REVPAR leaped 6.3%, while the average daily rate increased 4.9%. REVPAR for comparable company-operated North American full-service and luxury hotels escalated 6.8%, driven by a 4.6% rise in average daily rate. REVPAR for comparable company-operated North American limited service hotels grew 5.9%, driven by a 5.0% upside in average daily rate.
Update on Hotel Rooms
During the quarter, Marriott added 35 new properties and divested 13 properties. At the end of the third quarter, Marriott’s pipeline of hotels under construction awaiting conversion or approved for development totaled approximately 730 properties with over 120,000 rooms. The pipeline excludes the 8100 Gaylord rooms to be added to the system in the fourth quarter.
The company now expects to open approximately 28,000 rooms in 2012, up from the previous estimate of 20,000 to 25,000. Marriott also estimates that 10,000 rooms would exit the system in 2012.
At the end of the third quarter, total debt was $2,509 million compared with $2,171 million in 2011. Total cash balance was $105 million compared with $102 million of cash at the end of 2011.
In the reported quarter, the company repurchased 9.6 million shares for $353 million. As of September 7, 2012, Marriott had 16.2 million shares remaining under its repurchase authorization.
For the fourth quarter, the company estimates that comparable system-wide REVPAR on a constant dollar basis will increase 5% to 7% in North America, 3% outside North America and 4% to 6% worldwide.
The company expects total fee revenue between $445 million and $455 million and earnings per share between 52 cents and 56 cents in the fourth quarter of 2012.
For 2012, Marriott forecasts fee revenue in the range of $1,406 million to $1,416 million, down from the earlier projection of $1,410 million to $1,440 million. However, earnings per share projection for 2012 has been revised from $1.65–$1.75 to $1.68–$1.72.
For 2013, the company expects worldwide REVPAR on constant dollar to be up at a mid single-digit rate and North American system wide REVPAR to jump 5% to 7%, driven by high single-digit increases in room rates. The bookings for group business in North America are up over 7% with rates up nearly 4%.
The company reported better-than-expected results and we expect estimates to go up in the coming days. We believe that Marriott’s strong pipeline, significant international exposure, solid balance sheet, aggressive buyback strategy, lower operating cost structure and increased market share augur well for its earnings. The company is also experiencing strong group bookings in North America. Group business momentum continues, as the bookings for group business are up over 7% for 2013, with rates up nearly 4%. Marriott’s deal to manage Gaylord also remains strategically sound
However, in the near term, we remain cautious on the stock as the uncertain economic environment still lingers over Europe. Moreover, stiff competition from the major hotel chains and independent companies in the regional markets further add to this tough market scenario.
Marriott, which competes with the likes of Intercontinental Hotels Group Plc. (IHG - Snapshot Report) and Starwood Hotels & Resorts Worldwide Inc. , currently retains a Zacks #4Rank, which translates into a short-term Sell rating. We are also maintaining our long-term Neutral recommendation on the stock.