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Marriott’s Profitability in 2017: Could It Improve?

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2016 performance

For 2016, Marriott International’s (MAR) operating income rose 14.0% to $2.2 billion. Some of the growth can be attributed to the consolidation of Starwood’s financials with Marriott’s, while some of it is due to cost savings.

Operating expenses in 2016 fell 1.0% to $20.3 billion compared to $21.9 billion in 2015. That resulted in an operating margin expansion to 9.9% in 2016, from 8.9% in 2015.

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Expect a disordered 2017

We should keep in mind that 4Q16 numbers don’t include costs related to the Starwood merger. Given the transition costs and other merger-related expenses, Marriott management expects 2017 to be a messy affair.

Outlook

For 1Q17, general administrative expenses are expected to fall to $225.0 million–$230.0 million. For 2017, they’re expected to fall 6.5%–7.7% to $895.0 million–$905.0 million.

Most of that will be driven by cost synergies related to the merger. Marriott expects to see $175.0 million–$185.0 million. But it expects to achieve $250.0 million in annual cost synergies from 2018 and onward.

That could lead to a rise in EBITDA (earnings before interest, tax, depreciation, and amortization) of 3.0%–6.0% to $3.1 billion–$3.2 billion. That compares to 2016 adjusted EBITDA of $2.9 billion. Operating income is also expected to rise 5.1%–5.4% to $2.3 billion–$2.4 billion.

You can get exposure to the hotel sector by investing in the First Trust Consumer Discretionary AlphaDEX ETF (FXD), which invests approximately 14.8% in the hotel, restaurants, and leisure sector. It holds 0.58% in Wyndham Worldwide (WYN), 0.87% in Hyatt Hotels (H), 0.90% in Hilton Worldwide Holdings (HLT), and 1.2% in Marriott International (MAR).

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