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What to Watch When Marriott Reports Earnings

By Asit Sharma - May 9, 2019 at 11:55AM

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Investors should focus on both core numbers and a few broader themes in the hotel franchisor's upcoming first-quarter report.

Global hospitality industry leader Marriott International (MAR -1.09%) reports first-quarter 2019 earnings on Friday before the markets open. Shares of the luxury and midscale hotel franchisor have gained nearly 23% year to date, partially on optimism over new three-year financial targets announced during the first quarter. Below, we'll review expectations for the first quarter, the new long-term targets, and other essential storylines shareholders should familiarize themselves with heading into the report.

Key first-quarter benchmarks

Marriott is expecting RevPAR (revenue per available room; a key hotel industry metric) to increase by 1% to 2% in North America in constant currency terms against the first quarter of 2018. Outside North America, management anticipates that RevPar will grow by 2% to 4%, which will result in total global growth of 1% to 3%.

This overall RevPAR pace pales a bit against first-quarter 2018 year-over-year RevPAR improvement of 2% in North America, 7.5% outside North America, and 3.6% globally. Slower potential growth remains a concern for Marriott investors. However, given that the global economy remained robust in the first quarter, it's possible that Marriott will surpass its revenue-per-room outlook when it reports on Friday.

As for other significant items, Marriott projects gross fee revenue of $885 million to $905 million in the first quarter, versus $845 million in Q1 2018. The company has advised shareholders to expect adjusted diluted earnings per share (EPS) of $1.30 to $1.35, against $1.34 of adjusted diluted EPS in the prior-year quarter.

A businesswoman checks in at a hotel lobby reception.

Image source: Getty Images.

2021 goals: Property and profit expansion

In its first investor day conference held in two years in March, Marriott revealed an ambitious set of three-year goals. The organization plans to open 1,700 new hotels by 2021, which equates to between 275,000 and 295,000 rooms. The company has a current hotel backlog of 418,000 rooms, of which 214,000 are now under construction. Marriott believes the new properties will contribute $700 million in annual gross fee revenue after 2021.

Development will be paced by the fast-growing Asia-Pacific region. Marriott intends to increase its base of 710 hotels in this area to more than 1,000 by 2020. The company will also beef up its presence in the vibrant Middle East and Africa region: It's set to add 3,000 rooms to this portfolio in 2019. 

If Marriott's total global RevPAR achieves a compounded annual growth rate (CAGR) of 1% to 3% over the next three years, management expects that earnings per share will generate a CAGR of 11% to 15% against 2018 adjusted results during the same period.

Additionally, management plans to return $9.5 billion to $11 billion to shareholders between dividends and share repurchases from now through 2021. Investors can expect to hear some discussion on the organization's new three-year framework on Friday.

Updates on Marriott's CEO 

On May 3, Marriott disclosed that CEO Arne Sorenson had been diagnosed with stage 2 pancreatic cancer. According to the company's press release, the cancer was discovered at an early stage and does not appear to have spread. The CEO's medical team believes he can "realistically aim for a complete cure."

Sorenson plans to continue working during treatment, and doctors expect to perform surgery in late 2019. Investors can expect that Sorenson will likely address this subject, albeit briefly, during the company's earnings conference call. Given the early discovery and potential for complete recovery, shareholders should simply seek to stay informed on this topic in the quarters ahead. 

Plunging into the home-sharing business

This week, Marriott is slated to open its new home rental platform aimed at responding to competitive threats from the home-sharing industry, most notably from market pioneer Airbnb. As I discussed last year, Marriott has been testing a home-sharing concept in London through its pilot Tribute Portfolio Homes concept. The initial launch of the website, dubbed Homes & Villas by Marriott International, will include a curated inventory of 2,000 luxury homes in 100 regions in the U.S., Europe, Latin America, and the Caribbean.

Marriott plans to run the platform in conjunction with its loyalty program, which was recently renamed Marriott Bonvoy following the integration of the Marriott and Starwood loyalty programs last year. Bonvoy members will be able to earn and redeem points on rentals -- the company has already shared that during the Tribute Portfolio test run, where nearly 90% of participants were existing Bonvoy members. Thus, the new platform appears set to generate immediate revenue from built-in loyalty member demand. Shareholders should look for information on the new platform's revenue potential and slated geographic expansion for the quarters ahead during Friday's earnings call.  

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