Hotel companies thrive on travel demand, and Marriott International (MAR 2.52%) has seen substantial growth in the wake of its merger with Starwood Hotels & Resorts late last year. Yet with several online travel platforms having reported sluggish growth figures in recent months, some had feared that industry weakness might spread to Marriott's portfolio of properties.
Coming into Tuesday afternoon's third-quarter financial report, Marriott investors were hoping the hotel company would keep up the positive momentum from recent quarters. The company did even better on many fronts, not only overcoming the disruptions caused by major hurricanes in key markets but also seeing net gains by serving the many first responders and other visitors working to help people who were adversely affected by the storms. Let's look more closely at Marriott to see what it expects in the near future.
Image source: Marriott.
Marriott climbs higher
Marriott's third-quarter results indicated that the hotel chain continues to build momentum. Total revenue jumped 44% to $5.66 billion, which was better by 10 percentage points than the growth rate that most investors were expecting to see. GAAP net income rose more than fivefold to $392 million, and that worked out to adjusted earnings of $1.10 per share, outpacing the consensus forecast for $0.99 per share.
Marriott sustained its steady growth trajectory in key metrics. Comparable systemwide revenue per available room, or RevPAR for short, climbed 2.1%. International results continued to outpace what Marriott saw in its home North American market, where comparable RevPAR was up just 0.4%. When you combine the results of the formerly separate Marriott and Starwood businesses, base management and franchise fees were up 8%, and incentive management fees climbed 7% on stronger profits overseas. Adjusted pre-tax operating income was up 7% from year-earlier levels as well, despite the fact that Marriott sold off some hotels during the period.
Marriott is still working to broaden its reach, now counting more than 6,400 properties and resorts with almost 1.24 million rooms. The company added 22,800 rooms during the quarter, 8,000 of which were in international markets. Marriott has in some cases taken hotels that were previously operated under competing brands and converted them to Marriott properties, with more than 3,600 of the newly acquired rooms this quarter coming through this channel. The hotel specialist also has a healthy development pipeline, including more than 2,600 properties with about 450,000 rooms expected to open in the future.
CEO Arne Sorenson brought attention to the recent natural disasters and how Marriott responded. "Many of our hotels were rocked by destructive hurricanes in the Caribbean, Texas, and Florida, and the earthquakes in Mexico," Sorenson said. Yet the CEO praised his workers for serving aid workers and emergency personnel responding to the tragedies, along with guests whose homes were destroyed.
What's next for Marriott?
Marriott sees prosperous days ahead. Sorenson noted that the international opportunity that the hotel company has is huge, pointing out that "more than half of rooms under development are located outside North America, and 40% should fly one of Marriott's luxury or upper upscale flags."
Guidance for the fourth quarter was consistent with estimates given in past periods. Marriott believes that quarterly North American comparable RevPAR will likely be up 2% to 3% in North America and up 3% to 5% internationally. For the full 2017 year, comps will be up a more sluggish 1% to 2% in North America, but 5% gains outside North America should bring worldwide growth of 2% to 3%. Meanwhile, for 2018, Marriott expects 1% to 3% worldwide comps growth, with North America flattening out to 0% to 2% growth while international properties see 3% to 5% gains.
Marriott investors seemed fairly content with the report, although the stock did ease downward by less than 1% by midday on Wednesday following the announcement. The hotelier still has work to do to take full advantage of its larger network and fight back against competing services like home-sharing. Yet the steps that Marriott has taken so far point to a bright future for the luxury accommodations provider.
