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Marriott’s 2Q17 Earnings Preview: What Can Investors Expect?

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Part 4
Marriott’s 2Q17 Earnings Preview: What Can Investors Expect? PART 4 OF 8

Can Marriott Improve Its Margin after the Starwood Acquisition?

Analyst estimates

For 2Q17, analysts are estimating Marriott’s (MAR) EBITDA1 to grow 63.1% year-over-year (or YoY) to $805.8 million. Its 3Q17 EBITDA is expected to grow 68.3% YoY to $797.9 million. In 4Q17, its EBITDA is expected to rise 5.0% YoY to $794.2 million.

As we discussed in the previous article, the growth in the first three quarters of 2017 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 through EBITDA margin expansion, achieved by cost savings from the merger. For 2Q17, Marriott’s EBITDA margins are expected to expand to 14.4% from 12.7% in 2Q16. For 3Q17, its EBITDA margins are expected to expand to 14.9% from 12.6% in 3Q16 and to 14.1% in 4Q17 compared to 13.9% in 4Q16.

For fiscal 2017, Marriott’s EBITDA is expected to rise 44.3% to ~$3.1 billion. Its EBITDA margins are expected to expand to 14.2% compared to 12.9% in 2016.

Outlook

Marriott (MAR) expects its profitability to improve as a result of the cost synergies resulting from the Starwood merger. Management expects its 2Q17 adjusted EBITDA to increase 3%–5% YoY to $795 million–$815 million.

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

These savings could lead to 2017 adjusted EBITDA growth of 4%–7% YoY to about $3.1–$3.2 billion. The forecast is higher than Marriott’s earlier estimate of 3%–6% growth, which could lead to EBITDA of about $3.1 billion–$3.2 billion. This trend is due to better-than-expected 1Q17 earnings and could result in organic growth, excluding the impact of the Starwood acquisition.

Marriott’s operating income is expected to increase to $2.4 billion–$2.5 billion, which is higher than the earlier estimate of $2.3 billion–$2.4 billion. Its earnings per share (or EPS) could grow to $3.92–$4.09 compared with the earlier estimate of $3.79–$3.97.

Investors can gain exposure to the hotel sector by investing in the First Trust Consumer Discretionary AlphaDEX ETF (FXD), which invests ~15.0% in the hotel, restaurant, and leisure sector. FXD invests 1.1% each in Wyndham (WYN) and Marriott International (MAR), and it invests 0.55% of its portfolio in Hyatt (H). However, this ETF has no holdings in Hilton Worldwide Holdings (HLT).

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