Marriott Plans Cutbacks After Profit Slump
Friday, October 3, 2008
Marriott International's third-quarter profit plunged 28 percent, and executives at the Bethesda firm said yesterday that the credit crisis and deteriorating economy would force them to reduce staffing, slash share repurchases and watch projects be canceled or delayed.
Chief Financial Officer Arne Sorenson used the beginning of a conference call with analysts to urge the federal government to pass the comprehensive bailout being considered today by the House of Representatives, saying it was "important the plan be big and enacted very, very soon."
"Without action, the resulting credit squeeze could threaten business in our industry and many others," Sorenson said. "There are thousands, maybe tens of thousands of jobs at stake in our company alone, and we are typical."
Marriott, one of the largest employers in the region, said it could not yet provide details on plans for staff reductions, and Sorenson told analysts only that "we'll have some severance expenses in the fourth quarter." Marriott has already consolidated some jobs and made spending cuts in several areas of its operations.
For the third quarter, Marriott had a profit of $94 million (26 cents a share), down from $131 million (33 cents) in the corresponding period a year ago. The company lowered its 2008 full-year earnings projections from a best-case scenario of $1.88 per share to $1.68 a share. Analysts had previously been expecting $1.78 a share. Marriott expects worldwide revenue per available room, a key measure of lodging business strength, to decline 1 to 3 percent for the year.
The company predicted that 2009 would "remain unusually challenging."
"It's pretty bleak," said Robert LaFleur, an analyst with Susquehanna Financial Group. "I can't say I'm surprised at the outlook given what's going on in the economy. It came across as bleaker than anyone was expecting."
Marriott has seen weakness in leisure travel all year and is now seeing that weakness extend to corporate bookings. "I don't think there is a category of business that we can look at and say is strong at the moment," Sorenson said.
That is especially true for Marriott's timeshare business, in which contract sales fell 13 percent in the quarter. Marriott, which finances timeshare purchases and then sells the loans to Wall Street as securities, said it was having difficulty satisfactorily selling those notes.
The company, like many other large businesses in the United States, has encountered a tightened financing environment for its operations. It has a $2.4 billion revolving loan, and Sorenson said the firm has drawn down about $900 million. It is the second time Marriott has tapped the loan since the early 1990s. The other: after the terrorist attacks on Sept. 11, 2001.
"As we wait for improved liquidity in the marketplace, we have ample cushion under the $2.4 billion revolver, which is effective until 2012," Sorenson said.
LaFleur said Marriott has a solid balance sheet, with $117 million in cash at the end of the third quarter. "They have plenty of money to pay their debt service," he said. "The balance sheet isn't an issue."
Shares of Marriott closed at $23.74, down 5.3 percent, or $1.34.