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Marriott's 1Q17 Earnings Preview: What Can Investors Expect?

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Part 4
Marriott's 1Q17 Earnings Preview: What Can Investors Expect? PART 4 OF 8

Can Marriott Improve Its Margin after the Starwood Acquisition?

Analyst estimates

For the first quarter of 2017, analysts are estimating Marriott’s (MAR) EBITDA1 to grow 53% year-over-year (or YoY) to $701.8 million. For 2Q17, its EBITDA is expected to grow 64% YoY to $809.8 million. Marriott’s 3Q17 EBITDA is expected to grow 69% to $802.9 million, and its 4Q17 EBITDA is expected to grow 5% to $790.4 million.

As we discussed in the previous article, the growth in the first three quarters could be attributed to the consolidation of Starwood’s financials with Marriott.

Can Marriott Improve Its Margin after the Starwood Acquisition?

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Some growth could also come from its EBITDA margin expansion, achieved by the cost savings from the merger. Its 1Q17 EBITDA margin is expected to expand to 13.3% compared to 12.1% in 1Q16.

For 2Q17, Marriott’s (MAR) EBITDA margins are expected to expand from 12.7% to 14.1% in 2Q16. For 3Q17, its EBITDA margins are expected to expand to 15.2% compared to 12.6% in 3Q16. Its 4Q17 EBITDA margins are expected to reach 14% compared to 13.9% in 4Q16.

For fiscal 2017, Marriott’s EBITDA could grow 44% to ~$3.1 billion. Its EBITDA margins are expected to expand to 14.2% compared to 12.9% in 2016.

Cost synergies

Marriott expects the merger with Starwood to result in savings of $175 million–$185 million in 2017. This is expected to increase to $250 million annually in 2018 onward.

Outlook

Marriott’s (MAR) management expects its 2017 adjusted EBITDA to grow 3%–6% to ~$3.1 billion to $3.2 billion, representing the company’s organic growth excluding the impact of Starwood acquisition. Investors should keep in mind that the 2017 numbers do not include costs related to the Starwood merger.

Marriott’s operating income is expected to reach $2.3 billion–$2.4 billion compared to $1.4 billion in 2016. Earnings per share (or EPS) should grow to $3.79–$3.97 compared to $2.64 in 2016.

You can gain exposure to the consumer discretionary sector by investing in the iShares Russell 1000 Growth ETF (IWF), which invests ~20.7% in the sector and 0.36% in the hotel industry. Its holdings include 0.08% in Wyndham Worldwide (WYN), 0.19% in Marriott International (MAR), 0.08% in Hilton Worldwide Holdings (HLT), and 0.01% in Hyatt Hotels (H).

  1. earnings before interest, tax, depreciation, and amortization
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