The hotel business is highly competitive, but Marriott International (MAR 0.05%) hasn't hesitated to take steps to become one of the most successful in the world. Deciding three years ago to make a major acquisition of Starwood Hotels & Resorts was an aggressive move, but it's proven to be extremely valuable for the combined company, as Marriott has been able to build up even larger economies of scale. Now that the integration of Starwood has largely run its course, Marriott is in a position to consider further strategic moves even as the industry starts to face the reality of weakening economic conditions across much of the globe.
Coming into Friday's first-quarter financial report, Marriott investors were prepared to deal with flat earnings and relatively modest revenue growth. Marriott's results were mixed on those scores, but the hotel specialist still has the confidence it'll need to weather the coming storm and thrive in the long run.
Marriott stays the course
Marriott's first-quarter results demonstrated the hotel company's ability to do well even under subpar conditions. Gross fee revenue climbed 6% to $895 million, although total revenue including cost reimbursements moved higher by less than 1% to $5.01 billion. Adjusted net income actually eased lower by 1% to $482 million, but Marriott's stock repurchases helped boost adjusted earnings per share to $1.41, topping the consensus forecast among investors for flat performance of $1.34 per share.
Marriott's fundamental metrics also reflected this relatively sluggish environment. Worldwide comparable revenue per available room, or RevPAR, gained 1.1%, slowing slightly from its recent performance in past quarters. Within North America, comparable RevPAR picked up 0.8%, while international growth in the metric slowed to just 1.9%, about half what it managed in the fourth quarter of 2018.
Marriott did a good job of boosting its fee income for the period. Base management and franchise fees rose 6% on modest unit growth and higher credit card branding fees. Incentive management fees rebounded from poor performance three months ago, rising 5% on strength in North American full-service hotel properties. Yet lower termination fees cost Marriott in its "other" revenue category, which weighed on overall sales growth.
The hotel chain did keep growing its network. Marriott added 114 properties with almost 19,000 rooms during the quarter, bringing its total count to more than 7,000 properties with 1.33 million rooms. The hotel specialist sees further growth ahead, with a pipeline that includes about 2,850 properties and 475,000 rooms.
What's next for Marriott?
CEO Arne Sorenson tried to see positives in the results. "Our results in the first quarter highlight the resiliency of our business model," Sorensen said, "and the strength of our brands." The CEO pointed to better margins and greater cost synergies as helping to offset higher labor costs and modest growth conditions.
Marriott's guidance recognizes the environment the hotel company is in. For the second quarter, worldwide comparable RevPAR should grow 1% to 3%, with 1% to 2% growth in North America and 2% to 4% gains elsewhere. Gross fee revenue of $990 million to $1.01 billion would be 4% to 6% higher than in the year-ago period. Earnings are expected to come in at $1.52 to $1.58 per share, however, which would be 9% to 12% weaker than the second quarter of 2018's bottom line.
For the most part, Marriott made only minor changes to its 2019 guidance. The company still sees worldwide growth of RevPAR of 1% to 3%, although it boosted its growth projections for gross fee revenue by a percentage point to between 6% and 8%, leading to a range of $3.845 billion to $3.925 billion. New projections for earnings of $5.97 to $6.19 per share for the full year were about $0.10 per share higher than the previous forecast -- even though it would still bring the bottom line in below 2018's final $6.21 per share figure.
Marriott investors didn't seem entirely comfortable with those numbers, and the stock fell 3% in pre-market trading following the announcement. Yet with a long-term perspective, Marriott is willing to go through difficult conditions without panicking, and that should reassure shareholders that it will be able to thrive over the course of the next business cycle and beyond.