This quarter wasn’t expected to be a huge catalyst but after the HST disappointment, MAR looks relatively good.
As many of you know, MAR has been our favorite stock for the last few months and we see nothing in last night’s release to change our positive view. The quarter was messy and confusing – as we expected – and not necessarily comparable to estimates. However, guidance was solid which may move the stock in a positive direction today. Following the HST disappointment, expectations were ratcheted down. Going forward, we expect solid RevPAR growth for the industry and MAR. While we are not totally sold on this recovery from a Macro perspective, MAR’s almost pure fee business provides a level of protection from economic volatility. While the valuation has improved, we don’t believe the multiple yet reflects the strength of MAR’s cash rich, fee-based business model.
The conference call starts at 10am EST but here are some takeaways in the meantime:
- Managed and franchised room growth was a little better than we expected
- Managed rooms were 1,185 higher than we estimated (0.4%)
- Franchised rooms were 839 (0.3%) higher than we estimated
- Absolute RevPAR was about 1% higher than we estimated but the numbers aren’t exactly comparable
- Reported WW System wide RevPAR was at the midpoint of company guidance (5-7%)
- Fee revenue of $416MM missed – mostly on the incentive fee line
- Guidance: $420-$430MM
- Consensus: $426MM
- HE estimate: $429MM
- $9MM of the shortfall in fee revenue (vs. HE & Street) was from incentive fees
- The street wasn’t adjusting for the shift in timeshare fee accounting from Management to Franchise fees so their numbers aren’t really comparable. Versus our numbers, the rest of the shortfall came from lower base management fees ($4MM)
- Results from owned, leased, corporate housing and other were better than expected due to a combination of stronger owned/leased results and higher branding fees
- MAR reported $56MM of segment results vs.
- Guidance: $50MM
- Consensus: $59MM
- HE estimate: $52MM
- They did not provide a breakout of branding fees so it’s hard to comment on margins on the own/leased portfolio
- Not much to say on Timeshare other than:
- Street numbers aren’t comparable since MAR reported a partial quarter and didn’t provide the typical historical disclosure
- The partial revenues that they did report were lower than our numbers as were the partial segment results. $17MM of the miss vs. our EBITDA estimate for the quarter was attributed to timeshare segment results
- SG&A was $25MM higher than we estimated. We thought that the SG&A attributed to timeshare was $25MM (based on prior disclosure) and that the clean 4Q10 number, including timeshare, was $240MM (excluding charges). We assumed only a partial removal of SG&A for the quarter. The clean number of $219MM looks lower than what we would have projected. This obviously accounted for a large part of the discrepancy in numbers for us and probably consensus too.
- Guidance thoughts
- 1Q12 and full year RevPAR outlook looks fine – in-line
- Fee guidance is in the range of consensus ($1,438MM) and in-line with our $1,428MM estimate
- Owned, leased, corporate housing and other guidance is below consensus of $158MM and below our estimate of $154MM
- EPS guidance is better than our estimate of $1.49 and in-line with street estimates of $1.59