We are upgrading our rating on Marriott International Inc. (MAR), a leading worldwide hospitality company primarily focusing on property management and franchising, to Outperform from Neutral.
The rating upgrade is based on second quarter 2010 earnings, which were well ahead of the Zacks Consensus Estimate, primarily driven by higher-than-expected RevPAR growth particularly in North America. Additionally, Marriott is experiencing an increase in demand with a gradual recovery of the global economy. Business travelers are returning, with leisure demand increasing as well. Marriott also raised its fiscal year 2010 outlook.
We are also encouraged by the company’s strong pipeline, significant international exposure, solid balance sheet, lower operating cost structure, favorable pricing and increased market share.
Second Quarter Results Ahead of Estimates
Marriott’s second quarter earnings of 31 cents per share was ahead of the Zacks Consensus Estimate of 28 cents per share. Earnings was also well above the company’s guidance of 25 cents to 29 cents per share and recorded a substantial increase of 35% year over year.
The results were driven by higher-than-expected growth in revenue per available room (RevPAR) particularly in North America, which were up for the first time in nearly two years and the turnaround in business travel and leisure demand remained solid.
Total revenues aggregated $2.8 billion, up 7.7% year over year. RevPAR for worldwide comparable company-operated properties grew 9.9% (up 8.2% on a constant-dollar basis), while that for worldwide comparable systemwide properties rose 8.5% (up 7% on a constant-dollar basis).
Worldwide comparable company-operated house profit margins were up 90 basis points, driven by higher occupancy, slight rate increases and strong productivity.
Outlook for 2010
For the third quarter, Marriott expects earnings in a range of 18 cents to 22 cents per share on total fee revenue projection of $245 million to $255 million. Comparable system-wide RevPAR on a constant dollar basis is expected to increase 5% to 7% in North America and 7% to 9% outside North America.
For full-year 2010, Marriott raised its earnings guidance from the range of 95 cents to $1.05 per share to the range of $1.05 to $1.13 per share. Marriott also increased the lower end of its total fee revenue projection to $1.16 billion – $1.18 billion from $1.15 billion – $1.18 billion. Comparable system-wide RevPAR on a constant dollar basis is estimated to be up 4% to 6% (from 3% to 6%) in North America and 6% to 8% (from 4% to 7%) outside North America.
Zacks Consensus Estimate Increased
Based on strong second quarter results, analysts raised their estimates. Meanwhile, Marriott upped its fiscal year guidance. Management remains optimistic about the lodging industry based on the improving corporate and group demand trends and favorable rates. Moreover, analysts expect margin expansion to continue as Marriott stringently controls its expenses and the addition of new rooms in 2010 to benefit earnings.
The Zacks Consensus Estimate for the third quarter is now expected to be 22 cents, compared to 21 cents just 7 days ago. During that time, the average forecast for fiscal 2010 and 2011 jumped to $1.11 per share and $1.38 per share compared with $1.06 and $1.33, respectively.