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Marriott's 2Q17 Brings a Game Changer

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Part 4
Marriott's 2Q17 Brings a Game Changer PART 4 OF 7

How Marriott’s 3Q17 Earnings Guidance Disappointed Analysts

MAR’s 2Q17 performance

In 2Q17, Marriott International’s (MAR) operating income grew 59% YoY (year-over-year) to $620 million. All of this growth is attributed to higher-than-expected revenue growth due to cost savings.

How Marriott&#8217;s 3Q17 Earnings Guidance Disappointed Analysts

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Operating expenses fell 47% YoY to $5.2 billion, compared with $3.5 billion in 2Q16. MAR’s high revenue growth resulted in an operating margin expansion, from 9.9% in 2Q16 to 10.7% in 2Q17. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) also rose to $834 million—higher than Marriott’s own estimate of $795 million–$815 million.

Outlook for 3Q17

For 3Q17, general and administrative expenses are expected to rise 33.5%–36.6% to $215 million–$220 million. Depreciation expenses are expected to rise 94% to $70 million, up from $36 million in 3Q16. Its adjusted EBITDA should increase to $770 million–$790 million, compared with $474 million in 3Q16.

MAR’s EPS (earnings per share) should rise 5.5%–8.9% to $0.96–$0.99 in 3Q17, but this would be lower than the analysts’ estimate of $1.01, which led to an aftermarket trading decline for the stock on the day of the guidance release.

Outlook for 4Q17 and fiscal 2017

For 4Q17, general and administrative expenses are expected to fall to $229 million–$234 million. Depreciation expenses are expected to remain flat at $73 million, while EPS should rise 12.9%–23.5% to $0.96–$1.05.

For fiscal 2017, general and administrative expenses are expected to rise to $880 million–$890 million from to $704 million in 3Q16. Depreciation expenses are expected to rise to $290 million from $168 million in 3Q16, which would lead to EBITDA growth of 3%–6% to $3.1 billion–$3.2 billion, compared with its 2016 adjusted EBITDA of $2.9 billion. Most of this will likely be driven by the company’s revenue growth.

Notably, investors can gain exposure to the hotel sector and by investing in the First Trust Consumer Discretionary AlphaDEX Fund (FXD), which invests ~15% in the hotel, restaurants, and leisure sector, including 1.1% apiece in Wyndham (WYN) and Marriott (MAR) and 0.55% in Hyatt (H). FXD has no holdings in Hilton Worldwide Holdings (HLT).

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