Debt, recession down Marriott

Donald Saltz

January 31, 1992|By Donald Saltz

It was once the darling of the growth crowd, thanks to skilled and aggressive management that pushed earnings -- and share price -- higher. Then came the recession, compounded by an overbuilt industry and a pile of debt.

Today the stock of the Marriott Corp., although up from its low, languishes. Headquartered in Bethesda, Marriott carries a burden of more than $3 billion in debt, mainly because of the poor real estate market related to its hotel business. Additionally, the hotel business itself is weak, although Marriott fills more rooms than its competitors.

Marriott's share price reached its high, $43.75, in 1987. It has declined since and, most disappointing, has participated in few of the rallies that have occurred since.

A little more than a year ago, the share price dropped under $9; it has recovered to $18 but shows little oomph. At $18, the price-earnings ratio is at least 20 -- a result of lower earnings rather than growth as in the past.

Marriott was once a major restaurant company. It has disposed of chains such as Bob's Big Boy and Roy Rogers as the company focused on the lodging and contract food service industries.

The problems -- debt and weak sales -- stem from the lodging sector even though the company has been able to do much better with room occupancy than the industry average.

The company's fourth-quarter 1991 results will be out in early February. The quarter, traditionally Marriott's best of the year, is expected by analysts to trail the comparable period in 1990.

Those analysts differ substantially, however, on what lies ahead for Marriott this year.

Two Baltimore analysts who follow the company closely have differing views on Marriott.

Michael Mead of Legg Mason considers Marriott a stock that should be sold because of what he believes will be continued slowness in the hotel business, as well as downgrading by the business customers who often stay and conduct business at Marriott's lower-priced hotels.

"Economy hotels are getting many business clients and cutting into traditional hotels," Mr. Mead says. He expects business at lower-price hotels to be considerably stronger than at their higher-priced counterparts.

Steven Rockwell, analyst at Alex. Brown & Sons, looks for a good rebound by Marriott and he rates the stock a strong buy. Rockwell believes Marriott will benefit greatly from an economic recovery. He also thinks the company will be able to sell a large chunk -- about $1 billion -- of its hotel properties and still earn management fees to run them.

Marriott's debt, however, is a major stumbling block to success, with interest costs eating up income. The debt is expected to dip from its peak of $3.5 billion to about $3.2 billion when the fourth quarter's results are reported, but what happens to the economy in coming months will help determine how successful Marriott will be in selling off real estate.

Another problem is noted in the company's latest report, issued after completion of the third quarter. Every one of the hotel divisions -- full-service; Residence Inn, an extended-stay division; Courtyard, considered moderately priced; and Fairfield Inns, an economy chain -- had a decline in room rates because of promotional specials.

Even if the economy improves, the overbuilt hotel industry will remain very competitive, putting pressure on prices and earnings.

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