Thursday, February 10, 2005

Marriott Reports Fourth-Quarter Gains

Hotel News

Marriott International, propelled by rebounding business and leisure travel markets, particularly in the United States and Asia, reported fourth-quarter net income of $189 million, or 79 cents a share, up from $169 million, or 69 cents a share, in the year-ago quarter.

The lodging company's Q4 per-share earnings beat a First Call consensus estimate of 75 cents. Marriott saw healthy top-line gains, too. Revenue rose to $3.1 billion in the fourth quarter from $2.9 billion in the year-ago period, while RevPAR increased 10.4 percent at its North American hotels.

J.W. Marriott, Jr., Marriott's chairman and chief executive, said in a statement that it saw rate increases across the board. ADR strengthened "significantly," he said, especially late in 2004. Strong rate increases were reported in New York, Washington D.C. and Florida in the fourth quarter.

For the full year 2004, Marriott's lodging operating income rose 20 percent to $575 million from 2003 levels, owed to, among other factors, robust leisure and business demand, strong RevPAR, unit expansion and strong timeshare operating profits.

Profits, however, were partially offset by higher general and administrative expenses, which increased 16 percent to $607 million, driven partly by higher overhead costs associated with charges related to timeshare joint ventures.

Wall Street was somewhat disappointed over Marriott's 2005 outlook. The company said its lodging gains and other income are expected to total $75 million to $85 million in 2005, compared with $136 million in 2004, a decline of roughly 14 cents to 17 cents of earnings per share.

Contributing to the decline was a reversal of interest income. Marriott said it saw an interest income benefit of $55 million in 2004, but will see an interest expense of $10 million to $20 million, or 18 cents to 20 cents a share, in 2005.

Nonetheless, Marriott said it expects to gain market share in 2005, during which it will open 25,000 to 30,000 new rooms. The company said it expects North American RevPAR growth for 2005 of 7 percent to 9 percent, and 1.5 to 2 percentage points of improvement in house profit margins.

Base management, franchise and incentive management fees should total $990 million to $1 billion, an increase of 13 to 16 percent, the company said.

Assuming North American RevPAR growth of 6 percent to 8 percent in the first quarter 2005, Marriott said it expects first-quarter earnings per share of 52 cents to 54 cents, including roughly 6 cents of earnings from its synthetic fuel business.

Marriott said it expected a one-time pre-tax cost of $40 million to $45 million this year, as it gives incentives to property owners and franchisees to rollout new bedding by year end. Marriott recently said it would add new luxurious bedding to 628,000 beds at about 2,400 hotels worldwide, across eight brands.

The bedding will include plusher mattresses, softer sheets, more pillows and a fresh white look, and Marriott cited research in which consumers said the bedding would make it more likely that they choose a Marriott brand.

In a research report, Bear Stearns analyst Joseph R. Greff reiterated his "Outperform" rating on Marriott stock. He said the rating was based in part on Marriott's expected steady unit growth this year and next, strength in its timeshare business and growing free cash flows.

Room rates, profit margins and earnings quality, Greff said in the report, "remain on the upswing."


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