Marriott is less optimistic, despite terrific 1st quarter

Earnings rise of 29% unlikely to continue in view of economy

April 18, 2001|By Paul Adams | Paul Adams,SUN STAFF

Marriott International Inc. beat earnings estimates and reported a 29 percent increase in first-quarter net income yesterday, but the Bethesda hotel operator is less optimistic about the rest of the year as the effects of an economic slowdown begin to ripple through the travel industry.

Industry analysts said yesterday that Marriott is better positioned than most of its competitors to weather the recent downturn in business travel, but the company warned that it has become less confident about meeting its 2001 net earnings forecast of $2.12 per share.

Marriott, which operates more than 2,300 hotels, reported net income of $121 million, or 47 cents a share, compared with $94 million, or 37 cents a share, in first-quarter 2000. The average estimate of analysts polled by First Call/Thomson Financial was 45 cents per share.

Sales reached $2.44 billion, up 13 percent from the $2.17 billion reported a year earlier.

"I think people were kind of expecting them to just barely scrape by, and they did a little better than that," said Robert A. LaFleur, a hotel industry analyst with Bear, Stearns & Co. "But nobody is focused on what happened in the first quarter. People are focused on, `How bad are things going to get?'"

Business travel has dropped off considerably in recent months, particularly in markets that rely heavily on the flagging technology and financial services sectors of the economy. Many analysts predict the nation's hotel chains will offer deep discounts this summer in hopes of persuading budget-conscious leisure travelers to keep their vacation plans.

However, Marriott took a different path in the first quarter, raising room rates more than 5 percent in a bid to make up for a 2 percent decline in occupancy rates. Revenue per available room, a key industry measure, increased 2.5 percent in the first quarter, and Marriott officials expect to see growth of 2 percent to 3 percent for the year. The hotel operator had previously targeted growth in revenue per available room of 3 percent to 4 percent."[Revenue per available room] growth rates have clearly slowed in the U.S. during the first quarter as a result of weakness in the U.S. economy," J. W. Marriott Jr., chairman and chief executive, said in a statement.

"We are taking decisive steps to meet today's more challenging economic environment and are confident that our brands will continue to gain market share."

Marriott will continue an aggressive building program this year, with plans to spend $500 million for new hotels.

Despite the slowdown, the hotel operator isn't shying away from the luxury market, announcing in February that it will join Italian jewelry maker Bulgari SpA to launch a line of high-end hotels.

Marriott also continues to bring new and existing hotels under its management, including a deal to place the 225-room resort hotel and condominium project planned for Key Highway on Baltimore's Inner Harbor under Marriott's Ritz-Carlton brand.

So far, consumers are still spending on things like new cars and homes, leaving analysts optimistic that the leisure travel industry may show some strength this summer.

"We think there's more downside than upside in the sector," said Paul Keung, an analyst with CIBC World Markets, which gives Marriott stock a "hold" rating. "But the question is, Is this the tip of the iceberg, or will consumers hang in there?"

William A. Crow, an analyst with Raymond James & Associates, is more optimistic, giving Marriott a weak "buy" rating.

"We don't think there's a lot of downside to this story, nor do we think there's a lot of upside," he said.

Marriott shares - which traded as low as $30 last spring - gained $2.75 on yesterday's news to close at $41.25.

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