A surge in business and leisure travel bolstered Marriott International's fiscal second-quarter earnings. The world's largest hotel operator reported yesterday that profit rose 28 percent in the quarter ended June 18 from the comparable period last year.
The Bethesda company earned $160 million (67 cents a share) on $2.29 billion in revenue in the quarter, up from $125 million (51 cents) on revenue of $2.02 billion in the quarter last year.
While Marriott benefited from comparisons with last year, when the SARS outbreak and conflict in Iraq kept some travelers at home, "travelers have come back faster and in greater numbers than expected," said Arne Sorensen, executive vice president and chief financial officer.
Marriott's base fees from managing hotels for partners rose 20 percent, compared with the period last year. Franchise fees for lending its brand name to hotels increased 29 percent, as did performance-based fees for managing hotels.
"Marriott's earnings came in ahead of where the street had them," handily beating the 51 cents a share consensus, said Joseph Greff, hospitality industry analyst for Fulcrum Global Partners.
Shares of Marriott closed at $49.26, down 35 cents.
Marriott's worldwide occupancy rates rose to 74 percent, compared with 70 percent for the same period last year. Daily room rates increased by 3.7 percent. Revenue per available room, an industry benchmark of financial health, for Marriott's hotels worldwide increased 15 percent.
Demand for luxury accommodations remained strong: Revenue per available room for Marriott's Ritz Carlton hotels in North America rose 16.4 percent over the same period last year.
Revenue per available room grew 9.3 percent for the company's North American operations, nearly 55 percent in Asia and more than 15 percent in the Caribbean and Mexico.
Investments in synthetic fuel production contributed $31 million to the company's net income, compared with $26 million in the year-ago quarter. In late June, the Internal Revenue Service questioned whether three of Marriott's four synthetic fuel plants qualify for tax credits. "We remain confident that our facilities qualify," Sorensen said in the conference call. "We'll be working with [an] IRS audit team to convince them of our position."
Analyst Greff said concern over the IRS audit is "already reflected in the share price."
Profits for Marriott-managed hotels systemwide increased 2 percentage points. In the U.S., hotel profits were virtually flat, rising 0.5 percent.
Sorensen said Marriott's U.S. operations continue to face cost pressures, driven by wages and benefits. He said repair and maintenance costs have been higher than expected, due to some deferred maintenance over the past three years. Compared with 2000, the last good year for the hospitality industry, the decline in telephone revenues is also "significant," he said. Company officials attributed most of that loss to customers using cell phones instead of hotel room phones.
Marriott's time-share business saw a revenue increase of 20 percent.
Marriott officials noted that year-over-year gains may become less dramatic for the third quarter because of improved results in the latter months of last year. Greff, however, said continued growth will come from meeting group and business travel, as well as incentive management fees.
"We're still in the early phases of a recovery," he said.