Why Is Marriott (MAR) Up 1.7% Since Last Earnings Report?

It has been about a month since the last earnings report for Marriott International (MAR). Shares have added about 1.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Marriott due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Marriott Q2 Earnings Top Estimates

Marriott reported mixed second-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Adjusted earnings of $1.73 per share surpassed the Zacks Consensus Estimate of $1.36 and increased 56% year over year.  Total revenues came in at $5,346 million, which missed the consensus mark of $5,978 million but increased 2.6% from the year-ago quarter number.

RevPAR & Margins

In the quarter under review, revenue per available room (RevPAR) for worldwide comparable system-wide properties increased 3.8% in constant dollar (up 5.1% in actual dollars) driven by 3.8% growth in occupancy and a 1.3% improvement in average daily rate (ADR). In fact, the reported figure was within the management’s guided range of up 3-4% on a constant-dollar basis.

Comparable system-wide RevPAR in North America grew 3.1% in constant dollars (up 3.4% in actual dollars). Occupancy rate and ADR also increased 3.1% and 0.9%, respectively.

In constant dollar, international comparable system-wide RevPAR rose 5.7% (up 10.1% in actual dollars). Both occupancy rate and ADR rose 4.1% and 1.3%, respectively.

Worldwide comparable company-operated house profit margin expanded 60 basis points (bps) in the reported quarter. The expansion can be attributed to robust cost controls and synergies from the Starwood acquisition.

Also, North American comparable company-operated house profit margins expanded 60 bps. Meanwhile, house profit margins for comparable company-operated properties outside North America rose 50 bps.

Total expenses were up 3% year over year to $4,606 million mainly owing to higher reimbursed expenses. However, general, administrative and other expenses decreased in the quarter under review.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $939 million, up 15% year over year.

Third-Quarter 2018 Outlook

For the third quarter, the company anticipates comparable system-wide RevPAR to increase in the range of 1.5-2% (on a constant-dollar basis) in North America. This reflects the unfavorable impact of the week shift of Independence Day. Outside North America, Marriott expects the same to rise in the band of 5-6% and worldwide in the 2.5-3% range.

Furthermore, gross fee revenues are projected between $915 million and $935 million, up 11-13% on a year-over-year basis. General, administrative, and other expenses are expected to be in the range of $235-$240 million. Adjusted EBITDA is anticipated to be between $845 million and $870 million, up 5-8% on a year-over-year basis.

Earnings per share are envisioned in the range of $1.27-$1.33. The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.40.

Fourth-Quarter 2018 Outlook

For the fourth quarter, the company expects comparable system-wide RevPAR to increase in the range of 1.5-2% (on a constant-dollar basis) in North America. Marriott anticipates the same to rise in the range of 5-6% outside North America and 2.5-3% worldwide.

Furthermore, gross fee revenues are projected between $929 million and $944 million, up 8-10% on a year-over-year basis. General, administrative, and other expenses are expected to be in the range of $236-$241 million. Adjusted EBITDA is anticipated to be in the $896-$916 million band, up 14-16% year over year. Earnings per share are envisioned in the range of $1.47-$1.52.

2018 View

For 2018, Marriott anticipates earnings in the band of $5.81-$5.91 per share, up from the prior-guided range of $5.43-$5.55.

Comparable system-wide RevPAR is expected to increase 2-3% in North America, 5-6% outside North America and 3-4% worldwide on a constant-dollar basis. Room deletions are expected to be 5% for the current year.

Additionally, projects fee revenues are projected to lie between $3,640 million and $3,675 million, including $360-$380 million of credit card branding fees. Incentive management fees are anticipated to increase by nearly 10% from $607 million in 2017.

While operating income is envisioned in the range of $2,725-$2,770 million, general, administrative and other expenses are anticipated in the $935-$945 million band. Adjusted EBITDA is expected to be between $3,450 million and $3,495 million.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.57% due to these changes.

VGM Scores

At this time, Marriott has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Marriott has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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