Marriott (MAR) Down 30.8% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Marriott International (MAR). Shares have lost about 30.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Marriott due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Marriott Q4 Earnings Beat Estimates, Revenues Miss

Marriott International reported mixed fourth-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings of $1.57 per share beat the Zacks Consensus Estimate of $1.46 and improved 9% year over year. The company’s earnings in the quarter included a gain of 32 cents from an asset sale, which was partially offset by 26 cents thanks to asset impairments.

Total revenues of $5,371 million lagged the consensus mark of $5,515 million. However, the top line also improved 1.6% on a year-over-year basis.

At the end of 2019, Marriott's development pipeline totaled roughly 3,050 hotels, with approximately 515,000 rooms. Further, nearly 220,000 pipeline rooms were under construction.

RevPAR & Margins

In the quarter under review, revenue per available room (RevPAR) for worldwide comparable system-wide properties increased 1.1% in constant dollars (up 0.8% in actual dollars), driven by 0.8% increase in occupancy. However, average daily rate (ADR) declined 0.1%.

Comparable system-wide RevPAR in North America grew 0.9% in constant dollars (up 0.9% in actual dollars) owing to a 0.3% gain in ADR and 0.4% increase in occupancy.

On a constant-dollar basis, international comparable system-wide RevPAR rose 1.5% (down 1% in actual dollars), owing to a 1.3% rise in occupancy. The metric was partially offset by a 0.3% decline in ADR.

Meanwhile, worldwide comparable company-operated house profit margins increased 20 basis points (bps) on robust cost control and synergies from the Starwood acquisition, negated by marginal growth in RevPAR and increase in wages.

North American comparable company-operated house profit margins expanded 10 bps. Moreover, house profit margins for international comparable company-operated house profit margins increased 30 bps.

Total expenses were down 5% year over year to $5,097 million, primarily due to a decline in Reimbursed expenses.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to $901 million, up 4% with the year-ago figure.

Coronavirus Impact

The coronavirus outbreak will hurt the company’s first quarter and 2020 results. However, the company is unable to estimate any financial impact of the coronavirus outbreak at the moment as the duration and extent of the outbreak cannot be ascertained.

First-quarter 2020 Base Case Outlook (Excluding the Coronavirus Impact)

For first-quarter 2020, the company expects comparable system-wide RevPAR to increase in the range of 1 to 2% (in constant currency) in North America and worldwide.

Furthermore, gross fee revenues are projected between $940 million and $950 million, indicating an improvement of 5-6% on a year-over-year basis. Operating income is anticipated between $685 million and $699 million.

General, administrative and other expenses are expected within $230-$234 million. Adjusted EBITDA is anticipated in the range of $853-$867 million, suggesting year-over-year growth of 4-6%. Earnings per share are envisioned between $1.47 and $1.50. Notably, the Zacks Consensus Estimate for first-quarter earnings is pegged at $1.48 per share.

2020 Guidance Base Case Outlook (Excluding the Coronavirus Impact)

For 2020, Marriott anticipates earnings within $6.30-$6.53 per share, compared with $6.00 reported in the 2019. The Zacks Consensus Estimate for full-year earnings is pegged at $6.52 per share, which is above mid-point of the company’s guidance of $6.41 per share. Gross fee revenues are expected between $3,960 million and $4,040 million, suggesting growth of 4-6% from the year-ago period.

Comparable system-wide RevPAR is expected to be in the range of flat to up 2% worldwide, with RevPAR growth in North America around the middle of that range. Marriot now anticipates room additions to be nearly 5-5.25% in 2020.

Operating income is envisioned within $2,995-$3,095 million. General, administrative and other expenses are anticipated in the range of $950-$960 million. Adjusted EBITDA is projected in the band of $3,700-$3,800 million, indicating an improvement of 3-6% from the prior year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -13.69% due to these changes.

VGM Scores

Currently, Marriott has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Marriott has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.