Down Market Batters Profit At Marriott International

Bellwether Chain's 76% Decline Bodes Ill for Industry

Marriott International yesterday reported a 76 percent decline in net income for the second quarter, evidence that the hotel industry continues to face severe difficulties due to the recession and other challenges.

A number of factors are cutting into the hotel industry's revenue, including massive discounts aimed at drawing customers and fears of swine flu.

Marriott's hotel room prices in North America were down 12 percent during the quarter.

"Everyone is price-sensitive today, not just vacationers," Marriott President Arne M. Sorenson told analysts yesterday. "Pricing power will only return as occupancy recovers."

Also taking a toll is the lingering political outcry against corporate travel as well as the fact that some companies are curtailing trips to cut costs. Marriott is feeling the pain across its brands, which include its eponymous hotels, Ritz-Carlton, Courtyard and Residence Inn.

"Unfortunately, we aren't yet seeing more corporate travelers and business meetings returning to our hotels," Sorenson said.

The Bethesda-based hotelier said net income for the quarter ended last month was $37 million (10 cents a share), down from $157 million (42 cents) from the corresponding period last year. Overall second-quarter revenue dropped 19.7 percent, to $2.56 billion from $3.19 billion.

The revenue the company earns per room, a common industry measure of strength, declined 26 percent and may keep falling in the second half of the year.

Marriott shares closed at $20.44 yesterday, down $1.36, or 6.2 percent.

Business may get worse before it gets better. Marriott's estimate for full-year income is below what many on Wall Street had expected.

"I anticipated bad news, but their revised guidance [for the third and fourth quarters] was worse than anticipated," said John Arabia, an analyst with Green Street Advisors. "The rest of 2009 is going to be incredibly difficult."

The company, which manages about 3,200 hotels worldwide, is an industry bellwether and the first in its sector to report results this quarter, suggesting that other businesses may also be struggling.

Still, the company has a couple of things going for it as it heads into the second half of the year. Marriott has already cut costs through buyouts, shorter employee hours, attrition, layoffs and postponed investments.

Also, new hotel construction has dropped precipitously in the past year, which could help tighten up demand as the economy recovers.

"In the midst of a continued difficult environment for the travel and tourism industry, our company retains its focus on driving revenue, reducing costs and strengthening the balance sheet," J.W. Marriott Jr., chairman and chief executive of Marriott International, said in a statement.