This summary is based on the third quarter fiscal 2008 earnings call conducted by Marriott International Inc. (MAR) on October 2, 2008.
Management:
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Chief Financial Officer, Executive Vice President, President - Continental European Lodging: Arne M. Sorenson
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Senior Vice President Investor Relations: Laura E. Paugh
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Executive Vice President Financial Information & Enterprise Risk Management, Principal Accounting Officer: Carl T. Berquist
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Senior Director of Investor Relations: Betsy Dahm
Key Investors Issues
- Earnings increased marginally to $123 million or 34 cents a share.
- Revenues rose 1% to $3 billion.
Third Quarter Highlights
The firm reported earnings of $123 million or 34 cents a share, up 1% as revenues also increased by the same magnitude to $3 billion.
- Worldwide company operated hotels reported RevPAR gains of about 1% or 3.4% including the favorable foreign exchange impact.
- Limited service hotels were slower due to a mix heavily dependent on weekend consumer travelers and weekday business transient travelers as well as relatively higher supply growth.
- Full service hotels in New York, Orlando and Southern Florida benefited from completed renovations and good group business, while a few resort markets felt the impact of reduced airlift such as Hawaii, Las Vegas and Palm Springs.
For the Marriott hotels group revenue rose 2% despite the increased attrition in group meeting and attendance as well as slightly higher levels of cancellations.
- Outside the United States and Canada company operated hotels reported 5.7% RevPAR growth for the quarter or 13.4% including the impact of foreign exchange.
- Short-term group business largely corporate business has been hurt by the cost-cutting business environment.
- The reorganization of the sales force that began in early 2008 is helping drive market share as sales force focuses on the most value-added customers.
For company operated hotels inside North America, house profit margins declined only 130 basis points despite the 1% decline in RevPAR netting a 4% decline in house profit per available room.
- Energy costs were up 12% across the North American hotels and in the quarter energy costs alone drove a 50 basis point decline in North American company operated property level margins.
- The hotelier has also cut above property costs by scaling back systems, processing and supporting areas that are allocated to the hotels so that they are roughly flat relative to revenue.
- It opened about 6,500 new hotel rooms and the development pipeline remains at 130,000 rooms despite a difficult financing environment.
More than half of the pipeline is under construction and another 10% or so has construction financing in place.
- Although the lodging business is performing as planned, the timeshare business has been significantly impacted by the financial markets including the impact of weak residential markets and restricted credit.
- Contract sales at the fractional projects increased due to a good launch at the Lake Tahoe Ritz Carlton product.
- However, on a net basis the firm booked no new residential sales and contract sales at the core timeshare business declined 12% with declines in just about all US and European markets.
- Cash marketing and selling costs rose as a percentage of lower sales volume.
Reduced airlift to Hawaii has constrained performance of the two newer projects in that market and permitting delays have deferred closing of some residential sales.
- The firm booked a $22 million pre-tax impairment charge, $10 million net of the minority interest benefit.
- Delinquency rates on the US financed loans have risen from 6.4% in March to 6.6% in June to 6.7% in August but still showing better statistics than the broad marketplace reflecting the high credit scores of the firm’s borrowers.
While awaiting improved liquidity in the marketplace, the firm has ample cushion under the $2.4 billion revolver which is effective until 2012.
- Lodging notes receivable balance at quarter end was about $200 million while timeshare note receivables totaled about $575 million and guarantees where the firm is the primary obligor totaled only $320 million.
- Long term debt totaled just over $3 billion and the firm bought back nearly $90 million in stock but given the environment and current leverage levels, has discontinued the buyback.
Outlook:
- Given soft transient and weak near term group bookings, fourth quarter North American company operated RevPAR will decline 3% to 5%.
- Outside the US, RevPAR and property level margins are expected to be stronger in the US but noticeably weaker than year-to-date trends.
- Looking to 2009, for internal planning purposes the firm is assuming at least a 3% decline in North American RevPAR.
- International incentive fees could account for about 70% of total incentive fees in 2009.
Key questions and answers from the third quarter earnings call conducted by Marriott International Inc. (MAR) on October 2, 2008.
