Marriott Corp. is about to report an event that hasn't happened often in the Washington firm's 50-year history - a decline in quarterly profits.
But company president J. W. Marriott Jr. said in an interview last week that despite the temporary setback, his restaurant/hotel/air-line-catering firm still expects to meet long-established goals of 15 per cent annual growth in sales and profits.
"It won't be happy news" to some 48,000 shareholders, more than 24,000 of them residents of the Washington region, Marriott said of the company's statement for the second quarter, a period that ended with January in the middle of record cold weather.
Sales were strong enough to push Marriott slightly over $500 million for the first six months of the company's fiscal year, indicating that the local firm will surpass $1 billion a year for the first time in history, exactly 50 years after Marriott's father, J. Willard Marriott, started out with a 14th Street root beer stand in 1927. Only 13 years ago, Marriott sales were below $100 million annually.
Profits declined in the recent three months from their levels during the same period of 1975-1976, however. Marriott declined to predict what the final report will show, but several Wall Street analysts said the quarterly profits could be as low as 13 or 14 cents a share compared with 21 cents a year earlier.
Marriott conceded that "the good news didn't offset the bad," but he emphasized that the current fiscal year represents an unusal period for comparing quarterly profitability.
Starting last year, the Washington company entered the amusement park business by opening "Great Americas" in Gurnee, Ill., and Santa Clara, Calif. The initial success of the parks was greater than expected, with each one attracting more than 2 million visitors; despite first-year startup costs, the parks contributed profits of 3 cents a share to the fiscal 1976 total of 90 cents (total profits were a record $30.9 million, up 41 per cent from $21.3 million the previous year).
In terms of quarterly accounting, however, the theme-park business is seasonal - contributing revenues and profits only for the spring-fall months. Because Marriott has a fiscal year ending on the last Friday of July, the theme-park profitability will be recorded only in the fourth and first fiscal quarters.The second and third periods have no theme-park revenues but Marriott still must pay carrying costs such as interest payments on debt.
For future fiscal years, the effect of this seasonal imbalance will be similar when comparing year-to-year quarters. For the recently ended quarter and the current one, however, there is a distortion because there were no such theme-park costs last year.
William Patternotte, an analyst at the investment firm of Alex. Brown & Sons in Baltimore, said the theme-park comparison could add up to a reduction of 6 cents a share in the second quarter.
In the best of times, gains from actual operations might have offset such a one-time decrease in profits. But, as Marriott said last week, "From the first of December until now, business has been very, very tough." Cold weather trimmed profitability of restaurant operations in the Washington, Cleveland, Philadelphia and New Jersey areas, in particular. Business hours were restricted in some areas while costs remained constant or increased.
The Farrell's Ice Cream Parlors chain has been operating in red ink, providing what Marriott called a "classic exampel" of what happens when government raises minimum wages. At the 95 Farrell's units, part-time teen-agers account for 80 per cent of the work force. When the minimum wage was raised 10 per cent to $2.25 an hour, Marriott decided it couldn't increase prices because expected customer business was sluggish. As a result, profits dropped sharpy. Sales are 2 to 3 per cent below expectations, partially because some units are located in retail malls where business hasn't been booming.
Marriott's tax rate also is higher this year because it isn't benefitting from the investment tax credit related to construction of the two open theme parks. And Alex. Brown's Patternotte said the company was slow in gaining some needed price increases for domestic airline catering services, helping to create a squeeze on profits.
On the good side, Marriott's hotel business has remained very strong, although Washington area occupancy suffered during the transition between GOP and Democratic administrations. The company has four hotels in the Washington suburbs and will start construction on a fifth in April - a 300-room unit at Pooks Hill in Bethesda. Overall Marriott hotel occupancy rates have been in the middle-to-high-80-per-cent range, above industry averages.
What will be the firm's largest hotel, with 1,200 rooms, is under construction in downtown Chicago, and 400 rooms are being added in New Orleans. Marriott recently took over the Hunt Valley Inn north of Baltimore and has nearly 15,000 hotel rooms under management today.
Marriott's cruise ship business also is earning money after two disastrous years. The Sun Line cruises earned a profit in the final quarter of the last fiscal year and remain in the black, with available reservations sold out during cruises this winter in the Caribbean and high occupancy expected for Mediterranean cruises this summer.
Although Marriott stock is not the glamor and growth darling of investors that it once was, company executives are planning for corporate growth that they expect will reattract some parts of the investment community who have been turned off by marriott's recent performance: a decline recently to just above $10 a share from a 1976 high of $19.125 on the New York Stock Exchange. On Friday, Marriott closed at $10.625.
Some institutional investors have been selling Marriott shares in recent weeks, while other investors have been buying at what Marriott said was considered an "undervalued" price compared with its historic levels, and the issue has been one of the most active NYSE stocks in recent weeks.
Of about 35.5 million shares of Marriott stock outstanding, the family owns some 20 per cent, institutions such as mutual funds and insurance companies own 35 per cent, and the balance is owned by the general public.
Marriott said he knows of no individuals purchasing large blocs in recent weeks and he said there have been no approaches to his firm or indications of a takeover bid from MCA, Inc., the giant West Coast-based entertainment firm. The Washington Post last Tuesday quoted sources as stating MCA was eyeing Marriott and Holiday Inns, among other firms, as potential takeover targets.
The Marriott chief executive indicated he would seek to block any such bid. "Our goal is to remain independent," he stated.
To emphasize growth as an objective, Marriott will spend about $100 million this year for capital projects. More than $10 million is being spent to expand the new theme parks, $25 million will be spent for hotels, $30 million for restaurants and the balance for airline catering, institutional food services and initial construction for the new headquarters building near Montgomery Mall.
Value Line recently predicted that Marriott stock would outpace general market performance in the coming year, with an erosion during recent months about over. The investment service said theme parks are expected to be a major contributor of profits during the fourth quarter of the current fiscal period, and Value Line estimated annual profits at a record $37.5 million ($1.05 a share).
Patternotte, of Alex. Brown, noted that Marriott stock has declined more sharply than the general market so far in 1977. "That may have been the last straw for some investors," he added. But he said recovery will start in the fourth quarter, and he voiced his view that the main question is how long it will take the stock price to get back to "premium levels of performance" that occurred in the 1960s and early 1970s.
Marriott is boosting its visitor capacity at the Illinois theme park by a third by adding a new roller coaster, several rides and new restaurant sections. In California, a new roller coaster is being added. The Illinois park will open May 7 and close Oct. 10; the California park opens March 26 and closes about next Thanksgiving.
Within five years, Marriott predicted confidently, his firm's annual sales will top $2 billion. Significant changes are about to hit the average American's style of living, in an era of more expensive energy and scarce fuels. But Marriott said that he believes, on balance, that Marriott Corp. will benefit from these changes because most of its operations are close to population centers.
Most meals away from home are consumed within a few miles of home, for example, where Marriott units are located. Audiences for theme parks of the size Marriott is building come mostly from an adjacent 40- to 50-mile radius. Most Marriott hotels are located near airports, which would be expected to benefit from more airline travel in the future.
Reduced regulation of airlines could lead to some lower fares and increases in general population air travel, but Marriott's hotels today primarily thrive because of business travelers, who account for 75 per cent of the company's hotel occupancy. "With less fuel, businessmen will travel more by air to save time and energy," Marriott forecast.
In addition, Marriott said one lesson from previous energy shortages was that people don't want to deprive themselves of vacations. "People always will travel." Disposable income may come under pressure but people will save up for trips and cut back elsewhere, he added.
Travel, hotels, restaurants, food service at office buildings and university campuses or on airlines, amusement parks, cruise ships. These are the businesses today, employing more than 60,000, that have grown from a single root beer stand started by Alice and Willard Marriott 50 years ago.
And, Marriott's son said last week, it's only the beginning. Worldwide, Marriott plans to step up its expansion. Nationally, the story will be the same.
One of the most dramatic parts of Marriott's growth may come in the Washington area, however, where it all began. Marriott forecast that Washington has seen only the tip of an iceberg of a major shift to this area of large corporation headquarters.
Martin Marietta Corp., a diversified serospace and construction materials firm, recently moved into its new world headquarters next door to Marriott's headquarters site near Montgomery Mall. Fairchild Industries is based in Montgomery County. And now, Mobil Corp., parent company of the nation's third largest petroleum firm, is considering relocating its offices to the Falls Church area from Manhattan. Many Washington area executives have said in recent weeks that they expect Mobil to make such a move and to touch off a wave of such relocations.
Marriott said last week his firm stands ready to bid on the Mobil headquarters food service contract. His hotels would house visitors to Mobil offices. His restaurants would help feed the company's more than 4,000 employees who would work here.
"We've got a lot going for us in 1979, 1980, 1981 and beyond," Marriott said last week.