Thursday, hospitality company Marriott International Inc. (MAR) posted a loss in the third-quarter, as the company recorded hefty charges related to the timeshare segment. Further, the company issued forecast for the fourth quarter as well as fiscal 2010, but said it was not a typical guidance.
Q3 Results
The Bethesda, Maryland-based company's third-quarter net loss from continuing operations attributable to Marriott was $466 million or $1.31 per share, compared to a profit of $94 million or $0.25 per share in the year-ago quarter.
On an adjusted basis, income from continuing operations attributable to Marriott totaled $53 million, a decline of 53%, compared to $123 million in the same quarter of last year. Per share earnings attributable to Marriott plunged 54% to $0.15 from $0.33 a year earlier.
On average, 23 analysts polled by Thomson Reuters expected the company to post earnings of $0.13 per share. Analysts' estimates typically exclude special items.
The company noted that the adjusted results for the latest quarter excluded $752 million pretax of impairment charges related to the timeshare segment, $8 million pretax of restructuring costs and other charges, and finally a $13 million after-tax non-cash charge in the provision for income taxes primarily related to the treatment of funds received from certain foreign subsidiaries that is in ongoing discussions with the Internal Revenue Service. Restructuring costs totaled $9 million pretax and primarily included severance costs and timeshare facilities exit costs.
Adjusted results for the prior-year third quarter excluded a $29 million after-tax non-cash charge or $0.08 per share in the provision for income taxes primarily related to a 1994 tax planning transaction.
Quarterly revenues totaled $2.47 billion, down from the previous year's $2.96 billion, but surpassed seventeen Wall Street analysts' consensus revenue estimate of $2.39 billion for the quarter.
J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, commented, "The hotel industry has been challenged by the economic environment. We've worked hard to rein in costs and right-size our businesses and those efforts are paying off. Our hotels are in great shape; owners and customers prefer our brands; and we enjoy very strong market share premiums."
Segment Analysis
The company's North American Full-Service segment generated revenues of $1.07 billion, down 13% from $1.24 billion a year ago, and North American Limited-Service division posted third-quarter revenue of $489 million, versus $544 million last year. Overseas revenues totaled $259 million, down 24% from the prior-year's $342 million. In the Luxury segment, quarterly revenues dropped 17% to $296 million from $357 million in the previous year, and Timeshare unit showed a decline of 29% in revenues that amounted to $330 million, compared to $463 million reported in the twelve weeks ended September 5, 2008.
Other Metrics
Base management and franchise fees fell 14% to $216 million, reflecting worldwide decreases in REVPAR in all brands offset in part by fees from new hotels. With continued soft lodging demand trends worldwide, third quarter incentive management fees plummeted 67%.
During the most recent quarter revenue per available room or REVPAR for the company's worldwide comparable company-operated properties dropped 23.5% and REVPAR for the company's worldwide comparable systemwide properties declined 21.4%.
Markets outside North America were impacted by the difficult economic climate, the Olympics, the timing of holidays and concerns about the H1N1 virus. International comparable company-operated REVPAR fell 28.9%, including a 22.7% downturn in average daily rate in the third quarter of 2009.
In North America comparable company-operated REVPAR decreased 20.6% and comparable systemwide REVPAR declined 19.3%. REVPAR at the company's comparable company-operated North American full-service and luxury hotels were down 20.2% impacted by a 14.6% downfall in average daily rate.
Marriott stated that REVPAR across its North American system declined less than expected during the recent quarter as leisure travelers responded to attractive promotions and great values in its hotels. With solid cost controls, the company's hotels translated better than expected occupancy rates to stronger than expected fee revenue and earnings.
Third-quarter adjusted Timeshare segment contract sales dropped 42% to $176 million, excluding a $24 million allowance for fractional and residential contract cancellations recorded in the quarter. Adjusted Timeshare sales and services revenue declined 35% to $251 million and, net of expenses, it dropped to $13 million from $47 million a year ago.
Year-To-Date Highlights
For the nine-month period, the company reported net loss from continuing operations attributable to Marriott of $452 million or $1.27 per share, compared to a profit of $369 million or $1.00 per share in the year-earlier period.
Adjusted net income from continuing operations attributable to Marriott was $224 million or $0.62 per share, down from $437 million or $1.17 per share earned in the corresponding period of the previous year.
Total revenues for the thirty-six weeks ended September 11, 2009 were $7.528 billion, a decline of 17%, compared to $9.095 billion in the same period of last year.
Future In Focus
Looking ahead to the fourth quarter, the company said its adjusted earnings from continuing operations attributable to Marriott shareholders for the fourth quarter could total $0.20 - $0.23 per share, based on certain assumptions and a 38% tax rate. Earnings attributable to Marriott shareholders, on a reported basis, is assumed to be in the range of $0.19 - $0.22 per share.
The company assumes fourth-quarter North American comparable systemwide hotel REVPAR declines of 13% - 16%. For comparable systemwide hotels outside North America, the company said it estimates REVPAR declines of 16% - 18% on a constant dollar basis. Total fee revenue is estimated to range between $310 million and $320 million. Owned, leased, corporate housing and other revenue, net of direct expenses, could total $15 million - $20 million.
In the fourth quarter, the company assumes Timeshare sales and services revenue, net of direct expenses, is assumed to total about $15 million, including a note sale gain of about $10 million - $15 million. Fourth quarter Timeshare contract sales could total $185 million - $195 million. Further, the company said it estimates investment spending in 2009 to drop by more than 50% from 2008 levels to about $325 million - $375 million.
For fiscal 2010, Marriott assumes the business climate, particularly the pricing environment, to remain difficult. For worldwide comparable systemwide hotels, the company assumes full year 2010 REVPAR will be flat to down 5% with performance strengthening over the year. The company estimates REVPAR in international markets to show greater relative year over year strength than North American markets.
Marriott anticipates opening 25,000 - 30,000 rooms in 2010. Based on these assumptions, full year 2010 fee revenue could total $1.05 billion - $1.11 billion. The company estimates that, on a full-year basis, one point of worldwide systemwide REVPAR impacts total fees by about $10 million - $15 million pretax.
For timeshare business, Marriott assumes 2010 timeshare contract sales could be in line with 2009 levels.
The company expects to adopt FAS 166 and 167 at the beginning of 2010, which will impact its accounting for securitized timeshare loans. Pretax earnings in 2010 would increase by $30 million - $50 million as a result of the accounting change, but no change in cash flow is anticipated, the company said.
Marriott said, "As we look ahead, while the recovery may be slow and perhaps uneven, our continued focus on driving revenue, controlling costs and strengthening our balance sheet will position us to benefit from an improving economy."
Peer Performance
Among Marriott's rivals, InterContinental Hotels Group Plc (IHG, IHG.L) incurred a net loss for the second quarter that totaled $56 million or 19.2 cents per share, compared to profit of $101 million or 34.1 cents per share last year, mainly reflecting asset impairment charges. Total second-quarter revenues fell 27.2% to $375 million from $515 million in the previous year. Further, the company said it is on track to open more than 400 hotels in 2009.
Another peer, Starwood Hotels & Resorts Worldwide Inc. (HOT) is slated to release third-quarter results on October 22, with analysts expecting earnings of $0.10 per share, on revenues of $1.16 billion.
Stock Quotes
Marriott shares, which have been trading between $11.88 and $27.79 in the past 52 weeks, closed Wednesday's trading session at $26.95.
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