As the first hotel operator to announce first-quarter results, Marriott International (NYSE:MAR) was the focus of industry watchers this morning. It passed the inspection with flying colors. Occupancy, room rates, and margins were all up in what is traditionally a slow period. As a result, revenues and earnings also came in higher, rising 13% to $2.53 billion and 30% to $0.61 per share, respectively. Both easily topped expectations.
The strong results point to a continued recovery for the cyclical lodging industry and raise the bar for Hilton (NYSE:HLT) and Starwood (NYSE:HOT), which are set to report next week.
Each of Marriott's brands in North America reported higher RevPAR (revenues per available room), from a 10.9% gain at the economical Fairfield Inn to a 13.5% improvement at the high-end Ritz-Carlton. Though the key metric is a function of both occupancy and pricing, the latter has a much more dramatic impact on the bottom line. Six months ago, Marriott reported that prices were rising faster than occupancy for the first time in the post-9/11 era. That trend has continued in earnest, with last quarter's overall 8.4% jump in RevPAR much more reflective of a solid 6.7% increase in average daily rates than was the modest 1.1% increase in occupancy levels.
Internationally, systemwide properties delivered a RevPAR gain of 11.4%, with vacation destinations in the Middle East, the Caribbean, and Latin America offsetting weakness in the United Kingdom. Travelers were particularly fond of upscale accommodations, with Marriott's namesake and the Ritz-Carlton brand both achieving gains in the mid-teens.
Marriott's profit margins have been marching along in lockstep with rising room rates. Margins in company-operated North American properties improved by 100 basis points, and those overseas expanded more than twice as much. This, in turn, helped drive incentive fees -- which are tied to property profitability -- 52% higher to $50 million. Base management and franchise fees were both up by double digits as well.
Marriott's corporate website has done a good job of siphoning reservations away from travel sites such as Cendant's (NYSE:CD) Orbitz and InterActiveCorp's (NYSE:IACI) Expedia. The company guarantees that its own website will offer the best rates available, and during the quarter, it booked almost $600 million in revenues -- a sharp 40% increase over the same period last year.
Management likes what it sees and has bumped up its 2005 systemwide North American RevPAR outlook to 8%-10%. It is also anticipating that profit margins will improve another 150 to 200 basis points. And it is expecting that out of an active development pipeline of 55,000 new rooms, up to 30,000 will fall under the Marriott umbrella over the course of the year. All of this should lead to upper-teens growth in management, franchise, and incentive fees to push the total above the $1 billion mark.
Results like that should have shareholders -- who have already enjoyed a 40% run-up over the past year -- relaxing comfortably.
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Fool contributor Nathan Slaughter once stayed in a $12/night hotel room during a finals-week, cross-country road trip in college. He owns none of the companies mentioned.
