MARRIOTT 2Q09 EARNINGS PREVIEW

In addition to discussing current trends, Marriott will likely highlight the strength of its balance and cost cutting efforts.  The company will likely discuss its debt reduction plans ($600 to $650MM), upcoming notes sale, reduced investment spending, SG&A and property level cost cuts.

2Q09 overview

When MAR reported its 1Q09 results on April 23, 2009, they guided to North American comparable systemwide RevPAR to be down 20 to 25% in 2Q09 and RevPAR outside North America to decline roughly 17 to 20%.  We estimate that total RevPAR will decline 22% in 2Q09.

  • Since April 23rd the Euro has been roughly 3% stronger, benefitting USD international ADR's
  • Lower end brands have had less severe RevPAR declines than Luxury and Upper Upscale, and limited service rooms make up 52% of Marriott's system-wide rooms.

We're at $0.23 cents and $210MM of EBITDA for Q2.  Despite our assumption of a 60% decline in incentive fees, we still think that fee revenues will come in a little better than management guidance, given our projected room count growth of 5%.  We have owned, leased, corporate housing and other revenue at $10MM, at the lower end of company guidance.  As MAR alluded to on June 2nd at the Goldman conference, margin declines will become worse throughout the year as they begin to annualize the cost savings initiatives that were put in place starting 2Q08.  Our timeshare estimates are in line with management guidance.

Full year 2009

We expect the company to keep its RevPAR guidance flat for full year 2009 and suspect that full year may come in a touch better given the depreciation in the dollar since initial guidance. For the balance of the year, occupancy will be stable to improving from its lows; however we believe that ADR will continue to be weak.  Since MAR doesn't own many hotels the flow-through issue is less of a concern for them than REITs and operators.  For this reason we think that MAR's EPS will likely trough in 2009, while most other c-corp and REIT operators will face further declines as occupancy and therefore directs costs increase, while rate is likely to still remain weak. For 2009, our EPS estimate is $0.95 and our Adjusted EBITDA estimate is $855MM.

  • Total fee revenues: we're in line with management guidance of $1,050 -$1,100MM
  • Gross margin from owned, leased, corporate housing & other: We're below management's guidance $55-$65MM
  • We're in line with timeshare guidance

 

YouTube from 1Q09 call

General Market Trends:

"As we've discussed before, our industry typically lags heading into a downturn and to recover, so we're obviously far from being out of the woods. However, there are some initial signs of demand stabilization even if at today is very low levels."

"We've seen gross booking trends for transient travelers flatten during the first quarter, and new group bookings, while still declining, are doing so at a lower rate. Of course, while demand may have bottomed, there is still risk in pricing and therefore RevPAR."

"To buttress transient occupancy, we added business from the federal government, travelers using AAA and senior citizen discounts and other contract customers. Despite this, we continue to see occupancy declines reflecting weakness across most corporate rated business."

"Nevertheless we are already seeing significant competitor discounting of room rates for corporate business in many markets. As we discussed last quarter Marriott will not lead the market down on rate but we also do not intend to lose share by failing to respond. Room rates are likely to remain weak until the economy shows meaningful improvement."

 

Group Business:

"recent cancellations are running at more normal levels."

"meeting planners are showing a greater preference for urban and suburban hotels rather than luxury and resort locations for new business. Another lingering impact of both the rhetoric and the economy is the continued hesitancy on the part of meeting planners to book new meeting though we note that the rate of year-over-year decline has been improving for the past 16 weeks."

"Attrition in meeting attendance remains a significant problem, but it too appears to be stabilizing."

 

Lease/ Owned business:

"While we own or lease 41 hotels, seasonally softer performance, combined with the weak economy, should continue to constrain profits. Results will also likely be affected by tougher comparables since contingency cost cutting for North American hotels began in the second quarter of 2008."

 

Timeshare:

"In our time share business new sales in the first quarter were consistent with our expectations and we were pleased with the relative strength all be it within small volume of our fractional sales."

"We've seen some stabilization [in delinquency rates] in early April which gives us some cautious optimism in this area."

 

Costs:

"On the cost side, we revived purchasing specs, shortened restaurant menus and hours, and reduced food waste. At some hotels we've temporarily shut down floors, reduced the number of restaurants and shortened retail outlet hours. Many associates were working in multiple departments and often at multiple hotels as we work hard to give associates as many hours as possible."

"Since cost reductions began in the second quarter of 2008 margin comparisons will become more difficult for the rest of the year."

 

Balance sheet/ Cash flow related:

"We continue to aggressively manage our balance sheet and our cost structure to meet whatever challenges may present themselves. During the quarter we reduced our debt by about $150 million and expect to reduce debt by $600 million to $650 million in full year 2009."

 

Other:

"We're also relaxing some brand standards for hotels and capital expenditure guidelines for new initiatives and renovations."


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