An upbeat Arne Sorenson acknowledged bumps in Marriott International’s 3Q2018, including hurricanes and softer than expected transient business in North America, but says it’s “steady as she goes” for the rest of the year into 2019, forecasting single-digit growth in RevPAR from 1% to 3% in North America and from 3% to 5% internationally.
Among other comments, Sorenson acknowledged that Marriott’s and Starwood’s loyalty programs, which were combined in August two years after the Starwood acquisition, created “an extremely complicated systems challenge.” At the time, elite users reported errors in their points totals, demotions in status and long wait times – or an inability to connect at all – to speak with Marriott to make corrections. The integration totals 120 million members.
“We have solved the most significant problems, Sorenson said, adding, “we discovered just how passionate our members are about our program.”
As of Tuesday evening, Marriott’s stock price closed at US$114.55, down 5% from Monday.
Read the details of Marriott’s quarterly report here.
In the quarter, diluted earnings per share were up 7% year over year to US$1.38; adjusted diluted EPS totaled US$1.70, a 62% increase year over year. Comparable systemwide constant dollar RevPAR rose 1.9% worldwide – 5.4% outside North America and 0.6% in North America. Q3 reported net income totaled US$483 million, flat YOY; adjusted income for the period was US$598 million, a 51% increase YOY. EBITDA totaled US$900 million in the quarter, a 12% increase YOY. For the year, Sorenson said the company expected its net room growth at 5% and 2019 room growth about a half-percentage-point higher.
RevPAR growth missed earnings expectations “but earnings still well ahead,” wrote Michael Bellisario of Baird Equity Research. “The headline focus will likely be the weaker-than-expected RevPAR growth of 1.9%; despite this top-line shortfall, thought, bottom-line results easily topped expectations versus our model (and guidance).” That’s due to about US$87 million in termination fees, asset disposition and other income.
Marriott has lowered its expectations around the fourth quarter of this year, including in North America, which is projected to have RevPAR growth of 1.0%, lower than previously predicted, although international expectations of growth in the mid-single digits is unchanged. The company expects international RevPAR growth at 6% this year.
For 2019, the company estimates 3% to 5% growth in RevPAR internationally and 1% to 3% in North America, with net unit growth of 5.5% (deletions of properties this year are about 2%, but that’s estimated to fall to 1% to 1.5% next year).
Sorenson said strikes continue at 21 hotels in six cities. “We have been negotiating in good faith for many months,” he said, noting that negotiations ended successfully last weekend in Oakland, California, and Detroit. “We don’t expect the strikes to have a material effect in the fourth quarter,” he said, adding that the company was grateful for the associates affected who stepped up to work at the affected hotels.
Sorenson said there have been successes with updating Sheraton’s branding strategy, saying guest satisfaction has increased by 3 or 4 points.
“That is, as far as guest data is concerned, a massive shift positive,” he said. Despite developer partner interest in the brand strengthening, the work isn’t done, but “we feel we’re making really good progress.”
The company says its development pipeline stands at 417,000 room, with more than 212,000 under construction, with more luxury and upper upscale rooms than its top three competitors combined, Sorenson said.
Is there anything that could slow that down? “We do not see an economic downturn in the next year,” he said.