Marriott attributes earnings drag to low demand at Washington area hotels
By Abha Bhattarai,
As if Washington didn’t get enough blame these days, Marriott International is now pointing the finger at the nation’s capital for its disappointing performance in recent months.
The Bethesda-based hotel giant said government budget battles and a shortened congressional calendar dampened the company’s second-quarter earnings.
“We have been a bit disappointed so far to see D.C. essentially perform at flat,” Arne Sorenson, Marriott’s president and chief operating officer, said in a conference call last week. “We expect D.C. is going to tend to hold us back, probably through the presidential election.”
The company released financial results Wednesday that sounded decent enough. Profits rose 13 percent to $135 million, or 37 cents a share, in the second quarter from $119 million, or 31 cents a share, in the same quarter last year. But analysts say they were expecting much more.
“It’s all about the expectations — and the expectations were high,” said C. Patrick Scholes an analyst at FBR Capital Markets who was anticipating earnings of 38 cents per share.
Shares of Marriott tumbled nearly 7 percent the day after the earnings release, the stock’s biggest drop in two years.
Marriott is the first major U.S. hotel operator to report its financial results for the three-month period.
With about 100 area hotels — ranging from the budget Residence Inn to the high-end Ritz Carlton — Marriott manages twice as many Washington hotels as most chains, making it particularly vulnerable to hiccups in the D.C. market.
Demand for hotel rooms in the Washington area has risen slightly this year, according to Jan Reitag, senior vice president at Smith Travel Research.
“But unfortunately supply is up even more,” he said, adding that the 1.2 percent increase in demand has been eclipsed by a 1.7 percent rise in supply. Occupancy rates in the District have slipped by half a percentage point since the beginning of the year.
Marriott says much of its profits in the quarter came from international growth. The company has plans to build more than 20 hotels in China and double its presence in Europe by 2015.
“Emerging markets provide especially attractive opportunities,” J.W. “Bill” Marriott Jr., the company’s chairman and chief executive, said in a statement.
In addition to the weak demand in Washington, Marriott attributed its weaker-than-expected earnings to two international trouble spots: Tokyo, in the wake of the earthquake and tsunami that ravaged Japan in March, and the Middle East, where political turmoil is likely to result in a “pretty slow recovery” that could last 12 to 18 months.
The company lowered its annual projections and is now predicting profits between $1.35 and $1.43 per share, down from a forecast of $1.35 to $1.45 per share.
“Washington is not particularly unstable. There just hasn’t been much demand over the last year,” said William C. Marks, an analyst at JMP Securities. “Marriott made it clear that they don’t expect that this will change.”
Marriott’s D.C. struggles come as it recently announced plans to open a $520 million, 1,175-room Marriott Marquis at the D.C. Convention Center in the spring of 2014. Still, Elliott Ferguson, president and chief executive of Destination D.C., a nonprofit that promotes tourism to the city, is optimistic.
“This isn’t attributable to Washington as a destination but to other political and economic variables,” he said. “There’s a lot going for us. Congress still meets here. Tourists still come here. We have a lot of conferences. We’ll be fine.”