As we near the beginning of another reporting period for the major hotel operators, the ever-stronger upswing in the lodging business shows no signs of stopping. Judging by the latest results from industry leader Marriott (NYSE:MAR), it may have even picked up the pace. J.W. Marriott himself summed it up best, saying, "Rarely have we seen a more favorable pricing climate for our industry."
The company's CEO has gotten plenty of mileage out of that quote, but I felt it was worth repeating. After all, robust demand gave the company the pricing power to lift room rates at comparable North American properties by 7.9% during the third quarter. Those improvements, combined with a 1% uptick in occupancy, helped drive RevPAR (revenues per available room) up 8.8%. International markets were even stronger; a 9.4% increase (constant dollars) in prices helped overseas systemwide RevPAR climb 11.3% over the same period.
Overall revenues for the quarter rose 18% to $2.7 billion, driven by a sharp 31% increase in the firm's timeshare division. At the same time, management fees were up by double digits, and a 190-basis-point spike in property-level house profit margins pushed incentive fees up 43%. While revenues generated by budget-priced hotels like Courtyard jumped 9%, those derived from the firm's upscale properties -- which include the namesake Marriott chain and the amenity-laden Ritz-Carlton brand -- rose at nearly twice that rate.
Against that backdrop, Marriott was able to deliver an impressive 27% increase in EPS to $0.70 (excluding a one-time impairment charge). While the strong results might allay fears that soaring gas prices had become a speed bump on the cyclical sector's path to recovery, they did little to get Marriott's shares moving again.
With investors growing accustomed to blowout earnings reports from Marriott, as well as rivals like Hilton (NYSE:HLT) and Starwood (NYSE:HOT) -- both of which are scheduled to report later this month -- it's going to take even more to move the needle. Despite widespread improvements to start the fiscal year, more good news three months later, and healthy third-quarter results today, the stock has gained less than a fraction of a percent on the year -- much of that good news no doubt already priced into the shares.
Nevertheless, the operating environment remains robust, and demand continues to outstrip supply in many markets. As it happens, I spent most of last night searching Sabre's (NYSE:TSG) Travelocity for reservations for two upcoming trips to two different states. I couldn't find any hotel rooms available within 25 miles of either of my intended stay. That hardly constitutes a scientific study, but I'm betting it's not an isolated incident, either.
Fortunately, Marriott is actively expanding the number of rooms under its umbrella, many of which are conversions from other brands. Currently, the company has 60,000 rooms in its global pipeline, which will join the half-million units it already oversees.
With so many measures on the rise, investors may be happy to see that one has gone conspicuously down -- Marriott's diluted share count. The company has repurchased more than 20 million shares year to date.
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Fool contributor Nathan Slaughter holds no financial position in any of the companies mentioned.
