posted a drop in third-quarter earnings Thursday but expressed cautious optimism.
The world's largest hotel company reported a profit of $92 million, or 37 cents a share, down from the year-ago $103 million, or 41 cents a share, which included a 5-cent after-tax gain. Including a 1-cent gain for its synthetic fuel operation, Marriott made 38 cents a share, matching Wall Street expectations.
Lower room rates were a big factor in the profit slide, with revenue per available room, or revpar, off 0.5% from last year's quarter. In July, Marriott warned that revpar would range between no growth and a 3% drop. Marriott noted that revpar at full-service, upscale brands increased 0.4%.
"Since the fourth quarter is more dependant on business travel and group business, we can't be certain that these trends will continue in the fourth quarter, but it does appear to us that the early stage of a recovery in transient demand is underway," said J.W. Marriott, chairman and CEO, in a statement. "Our early estimates for 2004 are for 3% to 4% revpar growth in North America, suggesting that 2003 should be the trough for revpar."
The company also boosted earnings guidance for the fourth quarter and gave analysts an early look at 2004 earnings. Marriott said fourth-quarter earnings would come in between 60 and 62 cents a share, topping the 59 cents currently expected by Wall Street. In fiscal 2004, the hotelier said earnings would come in between $2.06 and $2.16 a share, higher than the $2.07 expected by analysts.
Marriott's results may not have shown the growth that many investors are waiting for, but analysts reacted positively to the company's news, saying that the hotel's optimism bodes well for other hotel companies, which will be releasing results over the next two weeks.
"We believe that other lodging companies will follow Marriott's guardedly optimistic lead for the remainder of the earnings season," said Harry Curtis, analyst at J.P. Morgan, in a research note. "For the fourth quarter, we believe that most companies will remain cautious and adopt a wait-and-see attitude due to group weakness, but more bullish expectations in 2004."
An industry recovery initially would benefit chains that own their own hotels, such as
, said Curtis. (Marriott generates much of its revenue from independent operators that own hotels with a Marriott brand.) Other analysts agreed but stopped short of saying the recovery is here.
"There's not enough optimism here to get us to a positive rating from a neutral rating on the sector, given the recent run-up in lodging stocks," said Joyce Minor, analyst at Lehman Brothers, in a research note. "Still, we now wouldn't be surprised to see more optimistic peers like Starwood and Hilton, which report on Oct. 30 and Oct. 22, respectively, sound a bit more upbeat."
On Thursday morning, hotel stocks rallied on Marriott's earnings news. The Dow Jones Hotel Index rose 1.4%, with Starwood leading the way, gaining 84 cents, or 2.3%, to $37.52. Marriott gained 16 cents, or 0.4%, to $44.90, while Hilton gained 29 cents, or 1.7%, to $19.95.