Marriott International Inc., the world's largest hotel company, reported a 13.8 percent decline in second-quarter profit yesterday, partly because of the high costs of a recent hotel acquisition deal and an initiative to make its beds more comfortable.
Although executives boasted of increased revenue, occupancy levels and room rates, investors reacted negatively to the earnings decline. Shares closed at $67.90 a share yesterday, down $2.50, or 3.55 percent.
The Bethesda company's profit dipped to $138 million (59 cents a share) from $160 million (67 cents) in the same period a year ago.
Marriott said the drop in profit stemmed largely from a $94 million non-cash write-off for its purchase of 32 hotels from CTF Holdings Ltd., which was part of a deal that ended litigation between the two companies. Marriott also took a $29 million hit for plush new bedding being bought for many of its hotels as part of a campaign to spruce up its rooms and image.
Marriott owns few of the more than 2,600 hotels it manages, which include the Marriott, Ritz-Carlton, Courtyard and Renaissance brands. To entice hotel owners to invest in 300-thread-count sheets, extra pillows and more frequent duvet cleanings, Marriott agreed to help pay part of the costs.
The company, which had earlier forecast a full-year profit of $2.80 to $2.90 a share, now projects profit in the range of $2.68 to $2.78 a share after the expenses for the hotel acquisitions are factored in.
Marriott executives focused on what the company called "outstanding" second-quarter results on the revenue side.
Revenue jumped to $2.66 billion, up 11 percent from $2.4 billion. One factor was a 44 percent increase, to about $52 million, in fees that owners of hotel properties pay Marriott after a hotel meets certain profit targets.
Revenue per available room, a key measure of a hotel company's strength, was up 11.1 percent, as rising demand helped drive up room rates, which increased 8.9 percent worldwide and 8.5 percent in North America.
"It's been a long time since we have seen demand so strong in so many places and average pricing move up so quickly," Arne M. Sorenson, Marriott's executive vice president and chief financial officer, said in a call with analysts.
In a statement, J.W. Marriott Jr., the company's chairman and chief executive, said "occupancy and room rates improved due to accelerating corporate demand, growing group meeting attendance and increasing global travel."
The company opened about 6,000 rooms worldwide in the quarter, including at the new Renaissance Paris Vendome Hotel in France.
Still, financial analysts were disappointed that these factors did not translate into a stronger bottom line. The "quality of . . . results was less than we hoped," William Greene, a Morgan Stanley analyst, wrote in a note to investors. Another analyst, Steven E. Kent of Goldman Sachs Group Inc., described the results as "confusing."