Marriott Earnings Fall as Timeshare Profits Shrink


Marriott International, the No. 2 U.S. hotel operator, Thursday posted a 7.6 percent decline in quarterly profit and forecast future earnings below Wall Street expectations, signaling a slowdown in the booming lodging industry.

Marriott's earnings declines comes amid a broader concern of softening in the leisure sector. On Wednesday, the shares in casino operators Las Vegas Sands Corp and Wynn Resorts Ltd plunged 12 percent and 10 percent, respectively, because of signs of disappointing growth in the Chinese gambling haven of Macau.

Marriott , which typically manages hotels instead of owning them, said net income in the third quarter fell to $131 million from $141 million because of lower timeshare profits and due to a tax rate that jumped to 43.5 percent from 34.8 percent.

Earnings per share were flat at 33 cents because of a lower share count in the third quarter this year compared to a year ago.

On an adjusted basis, which excludes earnings from Marriott's synthetic fuel business, the company earned 31 cents per share, slightly higher than Wall Street analyst expectations of 30 cents, according to Reuters Estimates.

Revenue for the company, which operates hotels under brands such as Marriott, Ritz-Carlton, and Fairfield Inn, rose 12 percent to $3.04 billion, boosted by higher room rates. The company also added 50 hotels to its system of 2,942 properties.

Slowing Growth

U.S. hotel companies have been enjoying a multiyear boom as robust demand and the limited construction of new hotels has allowed hoteliers to steadily raise rates. But after years of strong growth, there are concerns that the market in North America is cooling as the economy slows.

For its part, Marriott expects revenue per available room, or revpar -- a key measure of hotel performance -- to rise 5 percent to 7 percent in 2008, slightly slower than the 6 percent to 8 percent growth it forecast for the fourth quarter.

Despite the slowing pace, the hotel company said the softening U.S. economy has not shown signs of denting demand from travelers and from property developers.

"Based on favorable group bookings, 2008 is shaping up as another strong year," said Chief Executive J.W. Marriott in a statement.

Marriott said its development pipeline rose to 115,000 rooms from 110,000 rooms during the third quarter. Still, tighter credit markets are expected to slow the turnover in hotel ownership, which hurts Marriott's re-licensing fees -- the money collected when a hotel changes hands.

"With the credit crunch, we're a bit concerned you're going to see less of that churning among our hotel owners, and therefore we'll see a little bit less in re-licensing fees," said Laura Paugh, Marriott's senior vice president of investor relations.

The company also can't rely on an proceeds from hotel sales to boost profits, because it's essentially sold out.

"We really don't have many assets left to sell, so as a result our gains on asset sales will be dramatically lower (in 2008)," said Paugh.

Weak Outlook

The lower asset sales and re-licensing fees as well as slower timeshare sales stemming from construction delays will rein in the company's earnings.

Marriott expects fourth-quarter earnings, excluding its synthetic fuel business, which it plans to shut down at the end of 2007, to be between 61 cents and 63 cents per share, burdened by an anticipated 15 percent drop in timeshare sales.

The fourth-quarter forecast means the company expects its 2007 earnings to be between $1.88 and $1.90 per share, which is lower than a July forecast of $1.88 to $1.96.

For 2008, the company forecast earnings of $2.10 to $2.25 per share.

Both fourth-quarter and 2008 forecasts were below Wall Street expectations. Analysts, on average, had been expecting Marriott to earn 68 cents per share in the fourth quarter and $2.30 per share in 2008, according to Reuters Estimates.

Marriott shares, which as of Wednesday's close had dropped 15 percent since hitting a 13-year high of $52 on April 18, fell 2.7 percent to $43.14 in morning trade on the New York Stock Exchange.