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Marriott (MAR) Tops Q1 Earnings and Revenues, Stock Up 2%

Marriott International Inc. MAR posted robust first-quarter 2016 results, wherein both earnings and revenues beat the respective Zacks Consensus Estimate. Reflecting investor optimism, shares of the company rose around 2% during afterhours trading yesterday.

The company also announced that it is on track to complete its acquisition of Starwood Hotels & Resorts Worldwide Inc. HOT, which was announced on Nov 16, 2015, by mid 2016.

Earnings and Revenue Discussion

Adjusted earnings per share of 87 cents beat the Zacks Consensus Estimate of 84 cents by 1.3% and rose 19% year over year. Also, earnings came above management’s guided range of 81–85 cents. The upside reflects improved revenue per available room (RevPAR) and strong margins.

Strong demand and high occupancy rates continued to drive revenue growth, partially offset by the impact of negative foreign exchange translation. Total revenue increased 7% year over year to $3.77 billion. Growth in revenues from base management fees, franchise fees and incentive management fees segments was partially offset by a decline in the owned, leased and other revenue segment.

The year-over-year increase in revenues largely reflects higher RevPAR and new unit growth, partly offset by lower relicensing fees of $15 million and unfavorable foreign exchange translations of $7 million.

Further, revenues beat the Zacks Consensus Estimate of $3.67 billion by approximately 2.9%.

RevPAR & Margins

Increase in demand and occupancy rate led to RevPAR growth. In the first quarter, RevPAR for worldwide comparable system-wide properties grew 2.6% (up 1.2% in actual dollars), within management’s expectation of 2–4% growth. The increase was driven by a 2.4% rise in average daily rate (ADR) and a 0.1% rise in occupancy.

Comparable system-wide RevPAR (in actual dollars) in North America grew 2.4% (up 2.2% in actual dollars). While ADR grew 2.6%, occupancy rate dipped 0.1% year over year.

International comparable system-wide RevPAR rose 3.5% (down 2.5% in actual dollars) in the first quarter of 2016. 

Adjusted EBITDA was $458 million, up 7% year over year, supported by revenue growth.

Worldwide comparable company-operated house profit margin increased 70 basis points (bps) in the first quarter, attributable to higher room rates, improved productivity and lower utility costs. House profit margins for comparable company-operated properties outside North America increased 40 bps, while North American comparable company-operated house profit margins increased 90 bps.

General, administrative, and other expenses were $155 million, up 7.6% from the year-ago quarter. Expenses increased largely due to higher administrative costs and unit growth.

Total expenses increased 7% year over year to $3.40 billion on the back of higher reimbursement costs and higher general, administrative and other costs.

Second-Quarter 2016 Guidance

Marriott expects earnings per share in the range of 96 cents to $1.00, up from the year-ago level of 82 cents.

Comparable system-wide RevPAR are expected to increase 3–5% in North America, 2–4% outside North America and 3–5% worldwide.

Meanwhile, the company expects fee revenues between $520 million and $530 million. General, administrative and other expenses are projected in the range of $155 million to $160 million. 

2016 Guidance

The company expects comparable system-wide RevPAR on a constant dollar basis to increase 3% to 5% in North America, outside North America and worldwide.

Fee revenues are likely to total $1.995 billion to $2.045 billion, indicating year-over-year growth of 7% to 9%. The guidance includes the impact of roughly $35 million from unfavorable foreign exchange translations.

The company anticipates worldwide incentive management fees to increase 10% to 15%, including the impact of $9 million from unfavorable foreign exchange translations.

General, administrative and other expenses are projected to rise 2% to 3% to the range of $645 million to $655 million.

Not including the impact of the Starwood transaction, operating income is expected in the range of $1.52 billion to $1.59 billion, reflecting a 13–17% year-over-year surge.

Marriott presently has a Zacks Rank #3 (Hold).

Stocks to Consider

A better-ranked stock in the same industry is Hyatt Hotels Corporation H. Investors interested in the broader consumer discretionary sector may also consider Monarch Casino & Resort Inc. MCRI. All the stocks carry a Zacks Rank #2 (Buy).

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MONARCH CASINO (MCRI): Free Stock Analysis Report
STARWOOD HOTELS (HOT): Free Stock Analysis Report
MARRIOTT INTL-A (MAR): Free Stock Analysis Report
HYATT HOTELS CP (H): Free Stock Analysis Report
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