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Marriott Forecast - Poor Timeshare Sales

rfb813

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Marriott books lower 3Q profit, expects tough 2009
Thursday October 2, 2:23 pm ET
By Kristen A. Lee, AP Business Writer
Marriott reports lower 3rd-quarter profit and warns of tough 2009 amid economic turmoil


BETHESDA, Md. (AP) -- Hotel company Marriott International Inc. said Thursday that its third-quarter profit dropped 28 percent, compared to 2007, and it warned investors about deteriorating conditions for 2009 amid the ongoing financial crisis.
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Marriott said its revenue per available room declined in North America, and timeshare sales dried up amid the tight credit market and cutbacks in business and consumer spending. Revenue per available room, or revpar, is considered a key gauge of a hotelier's performance.

"It's ugly and getting uglier," said Susquehanna Financial Group analyst Robert LaFleur in a note to investors. "The domestic lodging business has slowed, and the pace of decline is accelerating."

Marriott is the first major hotel company to report third-quarter earnings. Thomas Weisel Partners analyst Jake Fuller said the company's gloomy projections "set a bad tone for the group."

In a sober conference call with investors, Chief Financial Officer Arne Sorenson argued that Congress should pass a financial bailout package:

"There are thousands, maybe tens of thousands of jobs at stake in our company alone, and we are typical," he said. And it is crucial "that the plan be big and enacted very, very soon."

Marriott's earnings projections came in well below analysts' expectations at 44 cents to 50 cents per share, compared to the consensus forecast of 63 cents. The company lowered its full-year 2008 earnings guidance to $1.62 to $1.68 per share, from its previous guidance of $1.77 to $1.88 per share. Analysts had forecast 2008 profit of $1.78 per share.

Marriott shares lost 93 cents, or 3.7 percent, to $24.15 in afternoon trading. The stock has traded between $22.12 and $45.10 during the past 52 weeks, and is off nearly 27 percent since January.

Sorenson said Marriott has a cushion under its $2.4 billion revolver, which is effective until 2012, to keep it comfortable until liquidity returns to the marketplace.

For the third quarter ended Sept. 5, net income slipped to $94 million, or 26 cents per share, from $131 million, or 33 cents, a year ago. Excluding a $29 million tax planning charge, the company's adjusted income from continuing operations totaled $123 million, or 34 cents per share.

Bethesda, Md.-based Marriott said revenue rose 1 percent to $2.96 billion from $2.94 billion.

Analysts polled by Thomson Reuters forecast earnings of 32 cents per share on revenue of $2.95 billion.

In North America, Marriott said third-quarter comparable company-operated revpar declined 1 percent and is expected to drop further -- between 3 and 5 percent -- in the fourth quarter.

Overall worldwide revpar gained 2.2 percent on a systemwide basis in the third-quarter, but is expected to drop between 1 percent and 3 percent in the fourth quarter.

Sorenson said Marriott's corporate group business has suffered as businesses have delayed booking events and trimmed their meeting and travel budgets.

The squeezed credit markets are also affecting the company's development pipeline, although Marriott expects nearly two-thirds of the 130,000 rooms now under construction or in the planning stages to open on schedule.

The company's timeshare business was hit the hardest.

"Tight credit, soft consumer spending and a difficult securitization market have lowered our expectations for the fourth quarter and 2009," Chairman and Chief Executive J.W. Marriott Jr. said in a statement.

The company booked no new residential sales during the quarter and said it does not expect a sale in the fourth quarter. It now expects 2008 timeshare sales to total $158 million to $168 million, down from its previous forecast of $230 million to $250 million.

Marriott's timeshare results worry investors in Wyndham Worldwide Corp., which relies more on them. Wyndham shares lost 80 cents, or 5.2 percent, to $14.49 in afternoon trading.

For 2009, Marriott said the outlook is uncertain, but the company expects the environment to remain "unusually challenging." The company expects at least a 3 percent decline in North American revpar next year.

Marriott forecast 2009 earnings between $1.48 and $1.60 per share, below analysts' consensus profit estimate of $1.85 per share.

Marriott said it will focus on cash flow by trimming investments and share repurchases.

Oppenheimer & Co. analyst David Katz said stock buybacks had been "a key positive" for the company.
 

cp73

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The company's timeshare business was hit the hardest.

It now expects 2008 timeshare sales to total $158 million to $168 million, down from its previous forecast of $230 million to $250 million.
This should take away any worries buyers have about ROFR. Sure doesn't look like to me they will be interfearing and intercepting many offers. So much for any of you that thought ROFR helps keep your prices up.
 

joestein

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The company booked no new residential sales during the quarter and said it does not expect a sale in the fourth quarter. It now expects 2008 timeshare sales to total $158 million to $168 million, down from its previous forecast of $230 million to $250 million.
Wow, no new sales. I can't imagine that they didn't sell any timeshares in the 3rd qtr. The sales must be reserved to cover the debt on them.
 

Latravel

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That's impossible - we bought 2 weeks in Shadow Ridge the first week of July. It probably closed in August. Either way, both July and August are 3rd quarter sales. It must mean something else? :shrug:

I sure hope things get better for Marriott. We all have thousands of dollars riding on the company doing well.
 

dougp26364

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Wow, no new sales. I can't imagine that they didn't sell any timeshares in the 3rd qtr. The sales must be reserved to cover the debt on them.
Timeshare sales are not included in residential sales.
 

winger

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Wow, no new sales. I can't imagine that they didn't sell any timeshares in the 3rd qtr. The sales must be reserved to cover the debt on them.
does residential sale mean timeshare sale??n
 

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The easiest way to cut expenses is chop heads. I won't be surprised if the staff/unit ratio gets hit. If I were a shareholder I'd demand it, especially in properties that are sold-out.
 

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The easiest way to cut expenses is chop heads. I won't be surprised if the staff/unit ratio gets hit. If I were a shareholder I'd demand it, especially in properties that are sold-out.
Why? The owners pay for it not Marriott shareholders.
 

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This should take away any worries buyers have about ROFR. Sure doesn't look like to me they will be interfearing and intercepting many offers. So much for any of you that thought ROFR helps keep your prices up.
ROFR keeps prices up if it is exercised.

I wonder how many timeshares are financed? Tighter underwriting standards and limited credit availability would hit here even harder than it has already hit auto sales.
 

gores95

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In a sober conference call with investors, Chief Financial Officer Arne Sorenson argued that Congress should pass a financial bailout package: "There are thousands, maybe tens of thousands of jobs at stake in our company alone, and we are typical," he said. And it is crucial "that the plan be big and enacted very, very soon."
You know I am still on the fence about this whole "Government bailing out large corporate businesses" but Marriott wasn't hit with the whole sub-prime fiasco, now were they?? ;)

Unbelievable that companies that are not doing real well right now are just sitting back and waiting for those taxpayer dollars to bail them out. I understand there are jobs at stake but at its core it just doesn't seem right.

I guess large corporations can piss away profits, invest poorly and not have enough saved for the lean times, then rely on the government when times get tough....where's MY bailout package??!?!?!
 

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Why? The owners pay for it not Marriott shareholders.
I assume that the properties aren't completely self-contained and that some cash either flows from them to Papa Marriott or vice versa. The net income from each property is definitely rolled to Inc's P&L probably via one or more sub-corps. If there isn't net income then Marriott would jettison the business since they're not in it for the glory. It would be reasonable to think the CFO might ask for x% improvement from each profit center and that would include the TSs. It's gotta come from somewhere and heads are the easiest place. Increased MFs are good too but I don't know if there are restrictions on that.
 

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You know I am still on the fence about this whole "Government bailing out large corporate businesses" but Marriott wasn't hit with the whole sub-prime fiasco, now were they?? ;)

Unbelievable that companies that are not doing real well right now are just sitting back and waiting for those taxpayer dollars to bail them out. I understand there are jobs at stake but at its core it just doesn't seem right.

I guess large corporations can piss away profits, invest poorly and not have enough saved for the lean times, then rely on the government when times get tough....where's MY bailout package??!?!?!
I suspect Marriott's comment for government intervention is in regard to the state of the credit markets. That affects everyone irrespective of how well off you are fiscally.
 

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I suspect Marriott's comment for government intervention is in regard to the state of the credit markets.
Agree. Marriott is in the same boat as any other business in this regard. As to declining TS sales. No surprise there. TS is a discretionary decision and in this environment, I do not expect people to be throwing a lot of money around for this sort of thing. It's akin to observing that one gets wet when they step outside in the rain. Presently, there's quite a storm brewing outside. Not much owners or Marriott can do except hunker down and see where the government ( and subsequently consumers ) take this thing.

The TS product remains what it is if you are an owner with goals and objectives. I doubt that purchasing more weeks is on many people's agendas at this moment given the dysfunctional credit system. But life goes on for our resorts and our HOAs. Fortunately Marriott is a large entity which should be able to make it to daylight ( whenever that finally happens ).

Barry
 
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tombo

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ROFR keeps prices up if it is exercised.
First no it doesn't. The week sells for whatever the week sold for. ROFR only changes who ends up owning the week at the price it already sold for, not one penny more. Second, if ROFR was actually this wonderful Marriott tool to raise prices, wouldn't Marriott ROFR now more than ever before with current resale prices as low as they have ever been? Just the opposite is happening. Prices are falling and Marriott is ROFR'ing less, if at all.

Where is Marriott and their ROFR when it is needed the most? It is absent because it is only used when it is good for Marriott, and it has absolutelly nothing to do with helping prop up resale prices..

ROFR resort owners are treated like family.
ROFR: "Robbing Our Family's Resales".
 
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thinze3

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It's obviuos that Marriott now has concerns about its own cash flow in the future.
Most likely Marriott cannot offer financing for every buyer that comes along like they could a couple of years ago.
Most likely Marriott WILL NOT be excorsizing ROFR for ANY properties any time soon!

Marriott spent billions of dollars on stock repurchases to make their earnings per share look better.
Now I bet they are kicking themselves for that.

.... Since the beginning of 2002 and through July 31, 2007, the company has repurchased approximately 181 million shares for $5.6 billion. LINK

Terry
 
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it ain't magic & it ain't rocket science

. . . Where is Marriott and their ROFR when it is needed the most? It is absent because it is only used when it is good for Marriott . . .

We're mixing apples and oranges here.

ROFR has always held a mutual benefit for both MVC and an owner of certain seasons at certain resorts. This objective fact has not changed ( nor has the business ethos of Marriott in general ). What has changed is the lending environment for every type of business in this terrible fallout from the subprime mess. And this effect trickles down to individuals as well. So you are not comparing Marriott's response to what one would term a "normal" business/financial environment. Not a surprise at this moment of tight credit and fleeing capital ( which means customers flee as well ).

So just what should one expect of the so-called market at this moment? Once again, it is pouring rain and we all get wet if we venture out into the market environment -- no surprise at all. Marriott is not lucky enough to be the recipient of a $25 billion bailout like GM receives from our upstanding members of Congress ( for it's own poor business decisions ). Marriott stands and acts on its own.

Abracadabra!:deadhorse:

Barry
 

tombo

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If a company's business policy is to make sure that resale prices of their product remain high through the use of ROFR (to help both themselves and their customers), I would expect them to show everyone that they would continue their policy in bad times and in good. If you actually believe that ROFR helps prices (I don't), then it is sad that Marriott is forsaking it's owners at the time they need the most help. I guess their mantra should be "When times are good we are there for you. When times are bad, you are on your own".
 
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If a company's business policy is to make sure that resale prices of their product remain high through the use of ROFR (to help both themselves and their customers), I would expect them to show everyone that they would continue their policy in bad times and in good. If you actually believe that ROFR helps prices (I don't), then it is sad that Marriott is forsaking it's owners at the time they need the most help. I guess their mantra should be "When times are good we are there for you. When times are bad, you are on your own".
I doubt it's a matter of business policy as much as fiscal reality. I haven't looked at their balance sheet but I suspect they aren't sitting on a pile of cash and there's no way they are going to dip into debt. Buying a resale unit is as much a discretionary expense for them as it is for us.
 

Dave M

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With my moderator hat on....

Those who wish to debate the merits and effects of ROFR should do so (as I have previously requested) in this linked thread devoted to that topic. This is not the thread for such a discussion.
 

thinze3

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I doubt it's a matter of business policy as much as fiscal reality. I haven't looked at their balance sheet but I suspect they aren't sitting on a pile of cash and there's no way they are going to dip into debt ....
Marriott has already begun drawing from its line of credit for the first time. :eek:

Marriott International was the latest company to say the credit storm was hurting it.

The hotel giant's chief financial officer, Arne Sorenson, said on Thursday it drew down $900 million from its bank credit lines to "supplement the dramatically reduced liquidity in the commercial paper market."

Sorenson, who spoke on a conference call after the release of Marriott's quarterly results, said it was the first time the company borrowed from its credit facility, currently worth $2.4 billion, since the September 11 attack.
LINK


Terry
 

dmaxdmax

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Marriott has already begun drawing from its line of credit for the first time. :eek:

LINK


Terry
Exactly - there's obviously no money for buy-backs. Low-ball offers are certainly worth trying.

If the numbers get bad enough there's always the chance that the TSs could get spun off. I'm sure there are "what if" threads regarding this but it would be too distressing to seek them out.
 

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Question

Dmax, what do you mean by "spun off"? Thanks!
 

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A Washington Post article cites Marriott as saying that when they sell a timeshare through financing Marriott does not keep the note but sells it. Apparently, there are no takers for these loans at the present moment. Marriott is not in the banking mortgage business. If they can't sell the mortgages, they are not in a position to hold these notes without great costs. In other words, the profit in selling the timeshare diminishes when you have to add in the administrative costs and risks associated with the mortgage business and people defaulting on payment. This is very bad news for their timeshare operations.
 

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Dmax, what do you mean by "spun off"? Thanks!
The TS business could be stripped out from Marriott Inc and sold to another corporation or set up as a stand-alone corp, with or w/out the Marriott name.
 

winger

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The TS business could be stripped out from Marriott Inc and sold to another corporation or set up as a stand-alone corp, with or w/out the Marriott name.
say it ain't so !!!
 
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