Marriott reports short-term gains, falls short of estimations

Marriott International's third-quarter 2015 results were released today, characterized by what company president and CEO Arne Sorenson called "solid performance" but lacking in any standout notes.

This claim is substantiated with the company reporting a 9-percent increase in net income over the same quarter in 2014, reaching $210 million. The company's North American revenue per available room rose 4 percent during the same period, despite what Sorenson called "unfavorable holiday shifts" in Marriott's group business. In addition, Marriott is keeping its rooms full, nearing 78 percent occupancy.

One of the company’s biggest investments in Q3 2015 was the repurchasing of 9.8 million shares of its common stock for $702 million. This move shows a renewed confidence in Marriott’s core business, but the road to these purchases has been long. Year-to-date through Oct. 28, Marriott has repurchased 25.1 million shares for $1.9 billion

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Like many others in the hospitality industry, Marriott is taking advantage of high occupancy and rates and is shifting its weight into global development. The company added over 10,000 rooms during the third quarter (roughly 3,800 of them outside the U.S.), and Marriott's global pipeline currently consists of more than 1,591 hotels (more than 260,000 rooms) as of the end of the quarter, exceeding one million rooms when combined with its existing product. 

This development activity includes recent expansion goals in the Caribbean, Latin America and now Africa, as well as the recent acquisition of Canada's Delta Hotels. The company was purchased by Marriott for $135 million, and added 9,600 rooms to Marriott's portfolio, as well as a future U.S. property planned for Orlando, Fla.

Short Term Gains
According to Sorenson, the company's asset-light strategy is allowing it to return more than $2.25 billion to shareholders through dividends and share repurposes, nearing a total of over $8 billion returned to shareholders over the last five years. In addition, Marriott's return on invested capital has totaled 47 percent over the last 12 months.

Marriott showed off good revenue numbers for Q3 2015, reaching approximately $3.6 billion compared to roughly $3.5 billion for the same period in 2014. The increase in most likely a result of higher RevPAR, which has been recognized across the board throughout the industry

However, the company's total fee revenue fell short of early estimations. On July 29, Marriott estimated its fee revenue for Q3 2015 would land somewhere between $470 million and $480 million, but the report found had only reached $465 million, lower than expected RevPAR growth in particular for the North America, Middle East and Africa regions.

For Q3, Marriott's Caribbean & Latin America hotels saw a 2.4-percent increase to RevPAR, reaching $140.95, while occupancy dropped 1.8 percent to 68.5 percent. The location was sustained by higher ADR, up 5.2 percent over 2014 (reaching $205.62). Europe saw the highest ADR percentage increase (up 5.5 percent to $178.39) as well as the highest RevPAR (up 8.8 percent to $147.82).

What's to Come
Looking to the future, Sorenson said that Marriott expects RevPAR to increase 4 to 6 percent worldwide, but the company anticipates full revenue for 2015 could total $1.876 billion, a growth of 9 to 10 percent over 2014 ($1.719 billion).

Sorenson also expects group business to continue gaining momentum. Group bookings at full-service Marriott hotels for 2016 are up more than 7 percent, with roughly 75 percent of the expected group business volume already booked. And what of the company's pipeline? Marriott forecasts gross room additions for 2015 to reach anywhere from 6 to 8 percent net, a wide margin of expectations.

Lastly, Marriott expects investment spending in 2015 to be between $700 million and $800 million. With a large incoming pipeline and strong short-term gains, Marriott is poised to pick up performance for the beginning of 2016.