WASHINGTON, D.C. As first quarter 2001 earnings reports are released some are already out there while others are yet-to-be-announced a picture of an industry (somewhat) on target is unfolding. However, analysts said that the same picture may not be painted for the remaining quarters of the year.
Right on track with these predictions, Marriott s 1Q earnings actually beat estimates by 29% but the company prefaced these seemingly bright results with an ominous outlook on the earnings results forthcoming for the remainder of the year. As an early warning sign of problems yet to come, Marriott s occupancy has already suffered a 2-point drop during the first quarter.
According to a recent USA Today article, Marriott intends to raise room rates 2% to 3% to offset the 2 point drop in occupancy a move that may not be so prudent in these belt-tightening times. Furthermore, the company warned that there is a great chance that its 2001 earnings will fall below Wall Street s consensus estimate of $2.12 per share.
Marriott, however, is in a good position in comparison to other hotel companies because it is a franchise company that is not as exposed to declines in RevPAR said Jason Ader, senior managing director at Bear Stearns. Considering Marriott has already lowered its estimates and is implementing reactive measures, non-franchisors may stand to be hit harder than expected over the next few quarters.
According to Ader, there are several key underlying elements, which all-told, spell bad news for the industry.
Labor costs are increasing labor prices are up versus last year and unemployment remains low so companies are having to pay more and search harder for employees. Furhtermore, the industry has expanded 3% to 5% in terms of number of rooms in every major city. Finally, energy costs are soaring in many key markets, said Ader.
All of these factors together have produced a higher cost structure in 2001, and it is uncertain when these trends will subside, he added.
As further evidence that analysts observations are right on track, Sabre, Cendant, and MGM Mirage unveiled 1Q results today in-line with or better than market expectations. Future earnings estimates, however, are being lowered generally-speaking across the industry. (4/19/01) Kelly Wayne