Marriott cuts 2019 forecast

Ritz-Carlton, Perth
The opening of The Ritz-Carlton, Perth will mark the luxury Marriott brand’s re-entry to Australia. Photo credit: Marriott International

In the wake of fines and a slowing economy, Marriott International now expects revenue per available room to grow in the range of 1 to 2 percent for the remainder of 2019, down slightly from the prior estimate of 1 to 3 percent due to slowing growth. 

The numbers for the second quarter of 2019 were, to echo other companies, “solid.” During Q2, worldwide comparable systemwide constant dollar RevPAR increased 1.2 percent (a 0.3 percent decrease using actual dollars).  North American comparable systemwide constant dollar RevPAR increased 0.7 percent and international comparable systemwide constant dollar RevPAR increased 2.8 percent for the same period.

Marriott’s reported net income totaled $232 million in the quarter, compared to Q2 2018's reported net income of $667 million. 

Some of the metrics were in line with the company’s earlier guidance: On May 10, the company estimated gross fee revenues would total $990 million to $1.010 billion in the second quarter, and the actual gross fee revenues totaled $999 million.

Marriott incurred $22 million of expenses and recognized $22 million of insurance recoveries to offset some of the costs related to November’s data security incident during the quarter, and also recorded a $126 million non-tax deductible accrual for the fine proposed by the U.K. Information Commissioner’s Office. In a statement, the company noted it has the right to respond before the amount of the fine is finally determined and a fine can be issued. “We intend to respond and vigorously defend our position,” CFO Leeny Oberg said during a call with investors. 

At the start of the earnings call, CEO/President Arne Sorenson acknowledged global economic growth is “clearly slower” than the company anticipated, and demand is keeping pace with that slowdown, especially in the U.S. 

As the New York Times noted, businesses have turned increasingly cautious about capital spending and travel budgets as earnings take a hit and global economic growth slows with the U.S.-China trade spat getting worse.

Pipeline, Unit Growth & All-Inclusive

Marriott’s development pipeline increased 3 percent in the second quarter, reaching 2,919 properties with a record 487,000 rooms, including 1,150 properties with an estimated 213,000 rooms under construction and 253 properties with approximately 40,000 rooms approved for development, but not yet subject to signed contracts.

The pipeline now includes the five new all-inclusive resorts under the company’s luxury and full-service brands due to open in the Caribbean and Mexico. The new platform, Sorenson said during the call, came after several merger and acquisition opportunities did not materialize. “We decided to move ahead with organic growth.” Sorenson said he expects the platform to grow through both new-build properties and conversions of existing resorts, but does not yet have a forecast for where the new resorts will be. “The Caribbean basin is the biggest market,” he said, but noted that the Mediterranean and Asia Pacific regions were also under consideration. “Our brands are well known in those markets. As we talk to our development team, we should see conversions and new builds.” 

The company added 112 new properties with 16,181 rooms to its worldwide lodging portfolio during the 2019 second quarter, including The Westin Desaru Coast Resort in Malaysia, W Muscat in Oman, and AC Hotel Riga, the company’s first hotel in Latvia. At the same time, 15 properties with 2,321 rooms exited the system during the quarter. At quarter-end, Marriott’s system had 7,100 properties and timeshare resorts with nearly 1,346,000 rooms.

As a result of construction delays in North America and the Middle East and Africa region, Marriott now anticipates net room additions of 5 to 5.5 percent for full year 2019, with expected room deletions of 1 to 1.5 percent. The company’s previous guidance for room additions was at 5.5 percent. Marriott has not, Sorenson emphasized, seen substantial project cancellations for in-development hotels. “The lengthened construction periods reflect labor shortages and products using multiple brands,” he said during the call. While 2019 may not see a significant uptick in openings, Sorenson focused on the longer term. “We can see that openings in 2020 and in a few years beyond should accelerate from 2019,” he said, cautioning that the company can’t be “precise” about when all of the hotels under way will open. “We do have, obviously, a very tight construction and labor market,” he said. In the U.S., even in the limited service segment, a lot of Marriott’s pipeline is not prototype work, but custom jobs in urban hubs, driving up both costs and timeframes. “Construction timelines continue to increase,” he said. “The good news is that when we look at our quarterly additions and deletions, we don’t see a change in portfolio.” 

Looking Ahead

The company anticipates net gains and other income could total $10 million in Q3 2019, largely reflecting a $9 million gain on an asset sale that it completed earlier this quarter.

For the 2019 third quarter, Marriott expects comparable systemwide RevPAR on a constant dollar basis will increase 1 to 2 percent in North America, 2 to 3 percent outside North America and 1 to 2 percent worldwide. Oberg expects the timing of the Jewish High Holy days to help hotels during this quarter.

Much as with Q3, Marriott expects Q4’s comparable systemwide RevPAR on a constant dollar basis will increase 1 to 2 percent in North America, 2 to 3 percent outside North America, and 1 to 2 percent worldwide. Numbers should be up over Q4 2018, Oberg added, due to last year’s strikes.

For the full year 2019, Marriott expects comparable systemwide RevPAR on a constant dollar basis will increase 1 to 2 percent in North America, 2 to 3 percent outside North America and 1 to 2 percent worldwide. The company is seeing “cautious” corporate demand at its hotels in China, but could see an uptick in Indian and Japanese properties. RevPAR in the Middle East Africa region will likely be flat, helped by the timing of Ramadan, and lower in Q4. The timing of last year’s World Cup in Russia will also bring down Europe’s RevPAR for the year compared to 2018.

On a personal note, Sorenson said that his treatment for pancreatic cancer was "going well," and that everything was on schedule.