Marriott earnings up on higher room rates

Monday, October 10th 2005, 10:10 am

By: News On 6

BETHESDA, Md. (AP) _ Hotel operator Marriott International Inc. said Thursday its third-quarter income rose 12 percent as higher room rates more than offset a relatively small financial impact from Hurricane Katrina.

Marriott, the world's largest hotel chain, said its profit was $149 million, or 65 cents per share, in the 12-week quarter ending Sept. 9. That was up from the $133 million, or 56 cents per share, in the same quarter a year earlier.

The results included a $17 million, or 5 cents-per-share, charge related to a Marriott investment in a Delta Air Lines leveraged lease. The airline filed for Chapter 11 bankruptcy protection last month. Excluding the charge, earnings were 70 cents per share, 6 cents per share better than the average estimate of analysts surveyed by Thomson Financial.

Third-quarter revenues were $2.7 billion, an 18 percent increase over the 2004 third-quarter revenue of $2.3 billion. Management fees that the company charges its franchisees were up 11 percent to $108 million, and the rates at company-operated properties worldwide were up 8.7 percent.

Revenue per available room, an industry benchmark also known as RevPAR, rose 8.8 percent at North American properties and 9.2 percent at Marriott's largest brand names, such as Ritz-Carlton, J.W. Marriott and Marriott.

Hurricane Katrina forced the company to temporarily close 16 hotels in the New Orleans area, where it has the largest presence of any hotel chain. Marriott said 12 would be reopened by the end of the week, mostly housing recovery workers, insurance agents and others helping with cleanup.

While the physical impact on Marriott hotels was large, the financial effects of Katrina are not, according to Chief Financial Officer Arne Sorensen. Any loss in revenue will likely be covered by insurance, he said, and the Bethesda-based hotel management company owns relatively few of the hotels it runs, shielding it from property damage costs. Roughly $13 million in group business has already been moved to hotels in other markets, Sorensen said. He estimated only $1 million in lost management-fee income during the third quarter, along with a $1 million donation the company made to relief efforts.

Marriott also does not expect any significant hurricane-related effect in its fourth quarter, Sorensen said. Wall Street analysts agreed, saying many of the big hotel companies would suffer little in the long term from the hurricane.

``I don't think the impact is as great as a lot of people wanted to believe,'' said William Crow of Raymond James & Associates.

More uncertain is the future of Marriott's synthetic fuel business. The company owns four plants that produce coal-based synthetic fuel, allowing it to claim federal tax credits for alternative energy sources.

The program contributed 13 cents per share in the 2005 third quarter, and the company predicts synthetic fuel will add 12 cents per share in the fourth quarter. The venture has been tremendously profitable _ Marriott's initial investment of $60 million has yielded $370 million in incremental net income, Sorensen said.

But rising oil prices, which could lead to a phase out of the credits under the federal law, led Marriott to forgo forecasting how much synthetic fuel will contribute to 2006 earnings.

``We cannot predict the amount of synthetic fuel sales for next year,'' Sorensen said.

Also unclear is whether rebuilding in New Orleans will affect the price and availability of building supplies across the nation, possibly dampening Marriott's plans for new construction, he said.

For the fourth quarter, the company estimates net income at 95 cents to 98 cents per share. That forecast is slightly higher than the 93 cents expected by analysts. Marriott estimated RevPAR growth at 8 percent to 10 percent in North America for the fourth quarter, with fee revenue rising 17 percent to about $320 million.

For 2006, North American RevPAR is estimated rising by 7 percent to 9 percent, with fee revenue totaling about $1.17 billion to $1.19 billion. Marriott estimated earnings for 2006 at $3 to $3.10 per share, excluding the effect of new accounting rules related to timeshares and the synthetic fuel business. Analysts are forecasting earnings of $3.03 for 2006.