Marriott International, the top U.S. hotel operator, said Thursday that second-quarter profit rose a better-than-expected 11 percent, but concerns about slowing growth in North America led to a decline in the shares.
For the second straight quarter, Marriott lowered its forecast for revenue per available room, or revpar -- a key measure of hotel performance -- from its hotels in North America. The lowered forecast reinforced concerns about a slowdown in its home market.
"Our sense is that Marriott's second quarter revpar and outlook may be viewed slightly negatively by the Street," said Deutsche Bank analyst Bill Lerner in a note.
But the company raised its full-year profit forecast and the strong quarterly earnings signal that the lodging industry's ongoing boom remains intact.
That boom has made hotel assets hot commodities and led to Blackstone Group's $20 billion offer for Hilton Hotels Corp last week, the biggest ever deal in the sector.
But analysts see Marriott as an unlikely target, because it is 23.5-percent owned by the family of founder J. Willard Marriott.
Marriott, which typically manages hotels instead of owning them, said net income rose to $207 million, or 51 cents per share, from $186 million, or 43 cents per share, a year earlier, helped by higher room rates and new hotels.
On an adjusted basis, which excludes earnings of 8 cents a share from Marriott's synthetic fuel business and charges related to the settlement of a tax dispute, the company earned 57 cents a share, beating Wall Street expectations of 53 cents a share, according to Reuters Estimates.
Revenue for the company, which operates hotels under brands such as Marriott, Ritz-Carlton, and Fairfield Inn, rose 11 percent to $3.21 billion, boosted by higher room rates. The company also added 30 hotels to its system of 2,898 properties.
To Add More Rooms
Marriott, which is developing a new brand for high-end, style conscious travelers as well as a chain of family-friendly resorts with kids television broadcaster Nickelodeon, said it plans to add 30,000 hotel rooms to its system this year and the same number in 2008.
Rampant supply growth could halt the industry's ability to raise room rates and threaten the long-running boom, but analysts see little immediate threat.
"Right now, they're getting supply growth in the areas there it helps them and doesn't really hurt them," said Robert LaFleur, an analyst with Susquehanna Financial Group.
Robust demand from business and leisure travelers and limited construction of new hotels have allowed hoteliers to steadily raise rates and grow earnings.
Revpar rose 7.5 present at the company's comparable properties worldwide. The growth was driven by strength in markets such as Moscow, Dubai, and Beijing. In North America, revpar rose 5.6 percent.
Marriott slightly lowered its forecast for 2007 revpar growth in North America to between 6 percent and 7 percent from an already-reduced range of 6 percent to 8 percent.
But the slower revpar growth in its home market is not affecting earnings. Marriott raised its forecast for 2007 earnings, excluding its synthetic fuel business, to $1.88 to $1.96 a share, compared with an April forecast of $1.84 to $1.94.
Wall Street analysts were expecting Marriott to post 2007 earnings of $1.92 a share, according to Reuters Estimates.
But the third quarter may be weak. Marriott forecast earnings between 27 cents and 31 cents a share for the period, well below analysts expectations of 37 cents, according to Reuters Estimates.
Marriott shares, which hit a 13-year high of $52.00 on April 18, were down 2.3 percent at $45.27 in morning trade on the New York Stock Exchange.