NEW YORK (Dow Jones)--Marriott International Inc.'s (MAR) dour second-quarter earnings suggest a recovery in the embattled lodging industry is still far at hand.
The company reported Thursday that its quarterly earnings fell 76% amid weak lodging and timeshares demand. Although the report beat Street estimates, the company said it expects third-quarter revenue per available room to decline 20% to 23% in North America and 22% to 24% elsewhere.
Marriott "sets the bar for the outlook to decline," for the industry, said Chris Woronka, an analyst at Deutsche Bank. "Marriott tends to be the bellwether. I can't imagine the other (hoteliers) saying something dramatically different."
Woronka also attributed Marriott's earnings beat to some $12 million in adjustments related to residual interest on timeshare notes previously sold that were mark-to-market.
All types of hotels - from budget to luxury - have been cutting costs, including work force reductions, as tumbling occupancy and room rates have left some hotel companies without enough cash to cover expenses. Time-shares, a former industry profit center, are also suffering.
In wake of the earnings report, Marriott's shares declined 7% to $20.24. Other hotel companies also traded lower as Starwood Hotels & Resorts Worldwide Inc.'s (HOT) shares declined 6.6% to $20.30 and Host Hotels & Resorts, Inc. (HST) slipped 4.77% to $8.
Keefe, Bruyette & Woods Analyst Smedes Rose expects similar bearishness from Starwood, which reports later this month. "Relative to our expectations, the international trends were worse in the quarter and their outlook for international (demand) was significantly reduced."
He noted that while hotel companies have been able to offset pressures by steep cost-cuts, that strategy could soon lose its effectiveness. "There is only so much they can do."
For the full year, Marriott expects revenue per available room, or Revpar, to decline 17% to 20% globally. Revpar fell 24% in the second quarter, including a worse-than-expected 21% drop in North America.
Marriott, which operates and franchises hotels under the Marriott, Ritz-Carlton, Residence Inn and Courtyard brands, is coming off two straight quarters of losses. Its credit ratings have been hurt amid forecasts the industry downturn will be deep and continue into next year.
The company reported a second-quarter profit of $37 million, or 10 cents a share, down from $157 million, or 42 cents, a year earlier. Excluding restructuring and other charges, earnings fell to 23 cents from 52 cents. The company in April projected earnings of 20 cents to 23 cents, which is below analysts' expectations. Revenue dropped 20% to $2.63 billion. Analysts polled by Thomson Reuters most recently were looking for $2.52 billion.
J.P. Morgan Analyst Joseph Greff said that on a positive note, Marriott kept its domestic Revpar guidance, which the lodging companies haven't done in several quarters. This could be "an indication perhaps of stabilization of domestic trends, at very low levels, and perhaps more confidence on the part of MAR in overall visibility and in pricing/volume booking trends," Greff wrote.
With the very positive reception of Elite Rollover Nights plus Double Nights in tandem with the Global Rate Break and all of the other promotions, Marriott's performance in the 2nd quarter and the drop in RevPAR would have been significantly steeper.
As the analyst points out, Marriott is the bellweather. Lacking the promotional strategies that Marriott executed extremely well, let's see how the other brands performed.
Thanks for posting.