UPDATE: Marriott Earnings Signal Enduring Pain For Hotels
16 Juillet 2009 - 5:58PM
Dow Jones News
Marriott International Inc.'s (MAR) dour second-quarter earnings
suggest a recovery in the embattled lodging industry is still far
at hand.
The company reported Thursday that its quarterly earnings fell
76% amid weak lodging and timeshares demand. Although the report
beat Street estimates, the company said it expects third-quarter
revenue per available room to decline 20% to 23% in North America
and 22% to 24% elsewhere.
Marriott "sets the bar for the outlook to decline," for the
industry, said Chris Woronka, an analyst at Deutsche Bank.
"Marriott tends to be the bellwether. I can't imagine the other
(hoteliers) saying something dramatically different."
Woronka also attributed Marriott's earnings beat to some $12
million in adjustments related to residual interest on timeshare
notes previously sold that were mark-to-market.
All types of hotels - from budget to luxury - have been cutting
costs, including work force reductions, as tumbling occupancy and
room rates have left some hotel companies without enough cash to
cover expenses. Time-shares, a former industry profit center, are
also suffering.
In wake of the earnings report, Marriott's shares declined 7% to
$20.24. Other hotel companies also traded lower as Starwood Hotels
& Resorts Worldwide Inc.'s (HOT) shares declined 6.6% to $20.30
and Host Hotels & Resorts, Inc. (HST) slipped 4.77% to $8.
Keefe, Bruyette & Woods Analyst Smedes Rose expects similar
bearishness from Starwood, which reports later this month.
"Relative to our expectations, the international trends were worse
in the quarter and their outlook for international (demand) was
significantly reduced."
He noted that while hotel companies have been able to offset
pressures by steep cost-cuts, that strategy could soon lose its
effectiveness. "There is only so much they can do."
For the full year, Marriott expects revenue per available room,
or Revpar, to decline 17% to 20% globally. Revpar fell 24% in the
second quarter, including a worse-than-expected 21% drop in North
America.
Marriott, which operates and franchises hotels under the
Marriott, Ritz-Carlton, Residence Inn and Courtyard brands, is
coming off two straight quarters of losses. Its credit ratings have
been hurt amid forecasts the industry downturn will be deep and
continue into next year.
The company reported a second-quarter profit of $37 million, or
10 cents a share, down from $157 million, or 42 cents, a year
earlier. Excluding restructuring and other charges, earnings fell
to 23 cents from 52 cents. The company in April projected earnings
of 20 cents to 23 cents, which is below analysts' expectations.
Revenue dropped 20% to $2.63 billion. Analysts polled by Thomson
Reuters most recently were looking for $2.52 billion.
J.P. Morgan Analyst Joseph Greff said that on a positive note,
Marriott kept its domestic Revpar guidance, which the lodging
companies haven't done in several quarters. This could be "an
indication perhaps of stabilization of domestic trends, at very low
levels, and perhaps more confidence on the part of MAR in overall
visibility and in pricing/volume booking trends," Greff wrote.
-By A.D. Pruitt, Dow Jones Newswires, 212-416-2197,
angela.pruitt@dowjones.com
-By Tess Stynes, Dow Jones Newswires; 212-416-2481;
tess.stynes@dowjones.com