With its stock continuing to dip to new annual lows, Marriott Corp. said yesterday its third-quarter earnings will be hurt by an $8 million charge it will take to cover food-service contracts the company said were improperly billed.
Bethesda-based Marriott said a routine audit turned up "inconsistencies" in the way it billed customers of its food-service division between 1985 and 1990. About 1,400 of Marriott's 3,300 food-service clients -- such as cafeterias run by hospitals, schools, government agencies and corporations -- were affected by the overbilling. Marriott said it discovered the errors itself, without prompting from its clients.
A company spokesman said there is no evidence of criminal behavior; rather, he said, the problems were a result of different billing procedures used by the various food-service companies that Marriott acquired over a five-year period, and overbilling for services not covered by the contracts. For example, in some cases the company charged clients for training workers, an expense that the contracts did not provide for.
"I guess we made some assumptions that weren't correct," said the Marriott spokesman, Robert T. Souers.
The improper billing, amounting to $14 million on a pretax basis, will be credited to clients' accounts, resulting in a third-quarter charge of $8 million, or 8 cents per share, Marriott said.
Marriott's stock dropped 75 cents yesterday to $18.75 in trading on the New York Stock Exchange. Analyst Joseph Doyle of Smith Barney, Harris & Upham & Co. said the stock's decline yesterday was relatively light considering the market's general decline and the company's negative news.
However, Marriott shares have been in a tailspin for the past several weeks, repeatedly falling to new 52-week lows because of investor fears of overbuilding in the hotel business and softness in the real estate sector. Marriott not only operates hotels, but also develops them for sale to outside investors.
Analysts yesterday disagreed on the impact of the $8 million charge against the company's earnings in the third quarter, which ends in late September. Margot Vignola of Salomon Brothers Inc. said the charge will wipe out an anticipated profit increase and leave Marriott with flat earnings for the quarter.
But Doyle, who cut his quarterly earnings estimate even before the announcement, said the charge will mean the difference between flat earnings and a slight decline.
Doyle said Marriott is getting higher room rates in its hotel division, but these gains are being offset by higher marketing expenses in all divisions.