Charges Cut Marriott's Profit

The hotel owner reports a solid increase in unit revenue.
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Updated from 9:38 a.m. EDT

Marriott International

(MAR) - Get Report

reported lower second-quarter profits from charges related to a recent real-estate transaction and a new bedding program, but the hotelier reported a solid increase in unit revenue as strong travel demand boosted room rates.

Washington, D.C.-based Marriott reported net income of $138 million, or 59 cents a share, for its second quarter, which ended June 17. That compares with $160 million, or 67 cents a share, a year before.

The latest quarter's results included a 26 cent-a-share charge related to Marriott's recent purchase of 32 hotels from CTF Holdings and the subsequent resale of some of those properties. Results also included an 8-cent charge for the company's new bedding incentive program and a 19-cent gain from the company's synthetic fuel operations.

Excluding those items, Marriott earned 75 cents a share in the latest quarter. On average, analysts were expecting EPS of 78 cents, according to Thomson First Call.

Assessing the latest quarter's results proved more difficult than usual. Several Wall Street analysts referred to Marriott's quarter as "confusing," and there wasn't agreement on what EPS number to use for adjusted earnings.

The general thinking, however, is that Marriott's quarter was in line with, or slightly better than, estimates.

Shares fell, however, and finished the session down $2.41, or 3.4%, at $67.99. Given the initial confusion over the results, investors may have decided to sell first and ask questions later.

Another possibility is that short-term investors sold shares on the earnings news. In recent quarters, this has been the trend in the lodging sector, even when hoteliers reported good news and raised estimates, according to Goldman Sachs analyst Steven Kent. Later, during the quarter, investors bid up share prices as indications of bullish industry trends emerge.

Revenue totaled $2.66 billion, up 11% from $2.40 billion a year before and ahead of the $2.58 billion analyst consensus. Marriott said North American revenue per available room, a key industry metric also known as revpar, rose 10% year-over-year in the latest quarter, in line with the company's guidance for 9% to 11% growth.

The company also forecast North American revpar growth of 8% to 10% for all of this year. That guidance is in line with the company's previous forecast. That may have disappointed investors hoping for Marriott to boost its revpar outlook, as it did when it reported its first quarter.

Marriott now expects full-year earnings of $2.68 to $2.78 a share, including charges of 26 cents a share for the CTF transaction and 10 cents a share for the bedding incentive program. Although that forecast is below the Thomson First Call consensus of $2.91, analysts view it as an improvement.

Goldman's Kent notes that the 26-cent charge for the CTF deal wasn't included in Marriott's previous forecast for $2.80 to $2.90. Excluding the charge from the latest guidance yields a higher range of $2.94 to $3.04, he says.