MAR: NOT THEIR BEST BUT COULD’VE BEEN WORSE

MAR still fell short despite the recent pre-announcement.  Q2 guidance was worse than consensus but not by much.

 

 

MAR’s discounted relative valuation and the recent negative sentiment surrounding the name could keep the stock afloat following today’s earnings miss.  Guidance could’ve been worse, quite frankly.  We think most lodging companies will struggle to make current Q2 consensus estimates.  Indeed, MAR gave Q2 guidance of $0.34-0.38, below the Street at $0.39 but we think the low end of that range is probably more appropriate.

 

Despite the company’s recently revised lower guidance, Q1 results still missed consensus EBITDA by 5% and EPS by a penny.  Q1 also fell short of our EBITDA estimate by 3% and came out a penny short of our EPS estimate.  Here is the detail:


1Q DETAIL

  • System-wide RevPAR growth came in a little below management’s revised down guidance:
    • The company expects its worldwide systemwide 1Q RevPAR to increase approximately 7%, at the low end of the company's 7 to 9% 1Q guidance”
  • Total fee revenue was $9MM or 3% below our estimate with most of the miss coming from opaque incentive fees
    • Base fees were just slightly below our estimate and franchise fees were $2MM light or 2% below our estimate
    • Incentive fees of $42MM which only grew 5% YoY, missed our estimate by 15%. In 2010 incentive fees grew 18% and 1Q2010 was an easy comp, since incentive fees fell 7% YoY.
    • Fee revenue of $279MM came in $1MM below the low end of management’s original guidance
  • Owned, and leased, corporate housing and other revenue fell 11.5% below our estimate but margins came in $4MM higher. 
    • While MAR didn’t disclose the branding and termination fees in the quarter, they did attribute the increase in margins primarily to higher branding and termination fees which have 100% margins. Excluding those fees, we believe owned and leased margins would have been negative.
    • Owned gross margins of $20MM came in at the low end of management’s initial guidance
  • While timeshare contract sales were disappointing (and in our opinion, the most important indicator and predictor of business health), segment results managed to handily beat our expectations.  This is partly attributed to the elimination of losses from the residential and fractional business that dragged down comparative results in 1Q2010.
    • Segment results of $35MM came in at the low end of management’s initial guidance

 GUIDANCE: CAN YOU SAY BACK END LOADED?

 

Q2 2011:

  • RevPAR is largely in-line with street expectation
  • Guidance of $0.34-0.38 falls short of the Street’s $0.39.  Low end of that range is more likely in our opinion.

FY2011:

  • Guidance was largely unchanged aside from:
    • Fee revenue guidance as taken down by $5MM from prior guidance
    • “Compared to full year guidance issued in February 2011, the company expects stronger performance at European owned and leased hotels and higher termination fees, offset by a $10 million decline in results in Japan.”
    • Adjusted EBITDA $15MM lower
    • SG&A was $15MM higher

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