Marriott Earnings: Behind the Numbers

(Marriott earnings article updated with commentary.)

BETHESDA, Md. ( TheStreet) -- Marriott International ( MAR) topped fourth-quarter profit expectations with a 21.9% jump in adjusted quarterly earnings.

Hotel operator Marriott International posted adjusted profits per share of 39 cents, up from 32 cents in the year-earlier period. Analysts' consensus had been for Marriott to earn 36 cents per share.

Marriott shares jumped 2.8% in morning trading Tuesday amid heavy trading. Around 2 million shares were already in play just an hour into the day's trading session compared with their average daily volume of 2.6 million.

Investor enthusiasm reflected the earnings beat as well as word from Marriott that it would split itself into two separate, publicly traded companies.

"Marriott International expects to spin off its timeshare operations and development business as a new independent company through a special tax-free dividend to Marriott International shareholders in late 2011," the company said.

After the special dividend, the Marriott family is expected to hold approximately 21% of the outstanding common stock of each company.

Hudson Securities analysts Robert LaFleur said that "at first blush we like the concept" of Marriott spinning off its timeshare business, "but we will need to see more details."

"The Street must really like the spinout, because the quarter was OK, but not great. Conceptually, we like the spinout idea and think it sets in motion the possibility of similar moves by other operators like Starwood Hotels & Resorts Worldwide ( HOT) and Wyndham Worldwide ( WYN) who have big timeshare operations," LaFleur wrote.

He noted that valuations of timeshare operations have been "a perennial conundrum for the Street and many have long argued that having timeshare operations depressed the overall multiples of lodging companies with them."

LaFleur wants to see more details about the spinoff, but said "the ability to allow investors to cleanly value timeshare will be a welcome development."

Under the spinoff plan, the new company will focus on timeshare and related products under the Marriott and Ritz-Carlton brands. Marriott international will continue to focus on its lodging management and franchise business, and will receive franchise fees from the timeshare company's use of Marriott and Ritz-Carlton brands.

"Marriott took a bold step when we introduced our Marriott brand to the timeshare industry in 1984," said CEO J.W. Marriott, Jr. "In this transaction, we take another innovative step forward as we combine the power of the Marriott and Ritz-Carlton brands with the flexibility and focus of a new independent timeshare company."

Marriott's timeshare operations generated revenue of $1.5 billion in 2010 and operated 71 timeshare and fractional resorts with more than 400,000 owners and approximately 10,000 employees.

In the fourth quarter of 2010, Marriott said total fee revenue increased 14% year-over-year to $389 million attributed to strong growth in revPAR -- or revenue per available room, a key metric in the hotel industry that multiplies a property's room rate by its occupancy rate.

Worldwide comparable revPAR rose 8.1% in the fourth quarter, Marriott said, while average daily rates rose 2.3%. International revPAR rose 10.1%, including a 3.1% rise in average daily rates.

Net income totaled $173 million, up from $106 million in the year-earlier quarter.

Revenue came it at $3.6 billion, just above the $3.59 billion analysts expected but down from $3.38 billion booked in the year-earlier quarter.

LaFleur expected Marriott to report better-than-expected revPAR results.

Marriott reiterated its forecast for 2011 revPAR growth between 6% and 8%, to a range between $1.21 and $1.24, and fees are expected to grow 12% this year. The Street's consensus is for full-year earnings-per-share of $1.40, though LaFleur is slightly less bullish, expecting the hotelier to earn $1.37 this year.

LaFleur noted that Wyndham Worldwide and Starwood each reported strong quarterly results recently, and said he would not recommend market watchers buy Marriott shares ahead of its report.

Even so, he maintained a buy rating on the hotel stock.

"Our universe has shown a lot of volatility around earnings this season," LaFleur noted. "The lodging cycle remains in the early innings of what should be a very long and prosperous run."

On Friday Marriott declared an 8.75 cent dividend payable on April 1 to shareholders of record on Feb. 25, maintaining the amount it paid its investors in November.

Marriott had reduced its dividend during the first three quarters of 2010, paying 4 cents per share. Prior to that it had paid the 8.75-cent dividend it reinstated last November.

Hotel and time-share operator Wyndham Worldwide said last week the return of leisure travelers helped it beat quarterly profit expectations by 2 cents share last quarter, but the hotelier disappointed investors when it failed to update its outlook.

Wyndham also raised its quarterly dividend by 25% to 15 cents per share.

The higher payout is expected to be declared in the first quarter of 2011 and paid on March. 25.

Wyndham booked net fourth-quarter earnings of $78 million, or 43 cents per share, compared with earnings of $73 million, or 40 cents per share, in the year-earlier period. Adjusted for one-time items, earnings came in at 46 cents per share, higher than the 44 cents analysts had expected.

Despite the earnings beat and increased dividend, investors were displeased that Wyndham stood pat on its previously announced earnings guidance for 2011, especially since the leisure company said the travel market was improving.

Wyndham forecast 2011 revenue in a range of $4 billion to $4.2 billion, in line with the Street's call for top-line results of $4.1 billion. EBITDA should come in between $925 million and $955 million, Wyndham said, while analysts' consensus was for $946.9 million.

Hudson Securities analyst Robert LaFleur noted that Wyndham's lodging revenue of $163 million came in $6 million higher than his expectations, though vacation ownership revenue of $497 million was $24 million below his estimates. Even so, LaFleur reiterated a buy rating and $38 price target on Wyndham shares.

Wyndham, the franchisor of Super 8 and Days Inn hotels, generates about 80% of its revenue from its time-share and vacation rentals business, which is largely patronized by leisure travelers, not business travelers. Just about a third of its hotel division customers are business travelers.

Starwood Hotels, which operates hotels under the W, St. Regis, Westin, Sheraton and Le Meridien brands, among others, also topped Wall Street's profit expectations.

Starwood said on Feb. 3 that increased revPAR in its North America and Asia Pacific regions, as business travel picked up, allowing it to raise rates, amid global economic recovery.

Starwood forecast current quarter earnings of 22 to 26 cents per share, in line with analysts' consensus for EPS of 24 cents.

Starwood booked 4.2% rise in fourth-quarter profits to $99 million, or 52 cents per share, beating expectations by 13 cents.

The White Plains, N.Y., hotelier grew revPAR by 10.2% in North America and 20.3% in Asia Pacific.

Fitch Ratings raised its outlook on Starwood to positive from stable, following its earnings beat.

Hotel and casino operator MGM Resorts International ( MGM) narrowed its fourth-quarter losses but revenue came in 1% lower year-over-year.

Hudson Securities' LaFleur noted that MGM Grand reported EBITDA of $32.5 million, down 30% year-over-year, pointing out that in the year-earlier quarter the property benefited from hosting a Manny Pacquaio fight.

The analysts maintained a sell rating on MGM shares, saying "there was nothing in this morning's numbers to suggest a faster-than-expected Las Vegas recovery." MGM owns 10 resort properties on the Las Vegas strip.

Casino revenue fell 3% year-over-year in the fourth quarter, in part because table games volume decreased 13%. Rooms revenue fell 5%, excluding the impact of resort fees. Occupancy at MGM's Las Vegas Strip properties fell to 84%, from 86%. Average daily rates were flat year-over-year at $110, while revPAR fell 2%.

Reports last week showed that MGM Resort's Macau initial public offering could generate $800 million.

The casino operator is seeking approval for its listing on the Hong Kong stock exchange at the end of the month. The IPO was originally slated for the second half of 2011 and was previously estimated to raise about $500 million.

In 2009, rivals Las Vegas Sands ( LVS) and Wynn Resorts ( WYNN) both completed IPOs of their Macau assets, raising $2.5 billion and $1.6 billion, respectively.

MGM's Macau joint-venture is co-owned with Pansy Ho, daughter of Chinese casino mogul Stanley Ho . The Ho family has been in the spotlight recently due to a controversial share transfer of the billionaire's empire to members of his family.

Starwood shares fell 0.4% Tuesday morning. Wyndham jumped 5.8%, and Wynn Resorts shares bid less than 0.1% higher.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

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