Marriott beats on earnings, but misses on revenue
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Marriott beats on earnings, but misses on revenue

The world’s largest luxury hotelier, Marriott International, reported a mixed bag of earnings this week. On the one hand, the company outperformed expectations on profitability by a significant margin – on the other, revenue came in slightly below consensus estimates. That’s a reflection of two things: first, that the industry is facing pressure; and second, that Marriott’s pricing power makes up for some of that pressure. However, even Marriott has to be realistic: the company adjusted its guidance on a crucial measure of success in the hospitality business, and that sent the share price down.

Investors weren’t happy with Marriott’s lowered guidance, and sent the share price down 2%

graph 0811 marriott

Source: Yahoo Finance

First, the results. Marriott posted revenue that came in a shade below analysts’ estimates for the quarter at $5.05 billion. They had been expecting a figure of $5.37 billion. That’s also a 1% decline from the year-ago quarter. However, Marriott was able to deliver a fairly easy win when it came to earnings. The company said net income decreased by $2 million from the comparable period, to $483. But that was better than Wall Street had expected, having pegged estimates for earnings per share at $1.31. Marriott reported earnings per share of $1.70.

Lower revenue is a sign that all is not well in the hospitality business – or, more specifically, the North American hospitality business. Marriott blamed weak demand in the country for its revenue miss in the quarter ended September 30. The company is not alone in facing those concerns – last month, one of its smaller competitors (Hilton Worldwide Holdings Inc.) slashed its full-year RevPAR growth target, citing growing international trade worries as the cause.

Marriott hasn’t entered panic mode, though. The company’s outperformance on earnings is a direct reflection of its pricing power – and the average room rate rose by 2.2% throughout the quarter just gone. Still, the company has joined Hilton in lowering its outlook on RevPAR (Revenue Per Available Room – a vital metric in the hotel industry). It now expects RevPAR to increase by 3% for the full year – that’s the low end of its original range of 3% to 4%.

Disclosure
Dominion holds Marriott International in its Global Trends Luxury Fund.


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