Marriott International Net Increases, But Industry Braces for a Slowdown

But months after other segments of the economy began feeling the pinch of weaker growth, Marriott and other hotel chains are bracing for tougher times. Profits Check In:

"We cannot ignore growing unemployment and falling consumer confidence," said Arne Sorenson, Marriott's chief financial officer. "We believe it's only a matter of time until the slowing economy hits our hotel business."

Mr. Sorenson said he expects the slowdown will show in Marriott's second-quarter results. His comments came as the Washington, D.C., hotel operator and management company said fourth-quarter earnings rose to $149 million, or 59 cents a diluted share, from $90 million, or 34 cents a share, a year earlier. The results were in line with analysts' expectations. Sales rose to $3.2 billion from $2.8 billion a year earlier.

Mr. Sorenson said he believes Marriott will be less affected by the economy than its rivals, largely because of a "flight to quality" as hotel-property owners seek to sign up with solid hotel-management brands.

Observers such as Bjorn Hanson, chairman of PricewaterhouseCoopers's lodging-consulting practice, have been predicting for months that profit growth will begin to slow. Last summer and even in the fall, those predictions were met with protest from hoteliers who said they weren't seeing signs of a slowdown.

For the year, Marriott reported net income rose 20% to $479 million from $400 million in 1999, while earnings per diluted share for the year advanced 25%, to $1.89 from $1.51 for the year earlier. The per share earnings increased at a higher percentage rate because there were fewer shares outstanding last year.

Typically, the hotel business lags behind much of the economy. Bear Stearns analyst Jason Ader says lodging historically is in the top-10 best-performing industry groups for six months after the beginning of a slowdown. That is largely because it takes that long for travelers, who plan business trips, conferences and vacations months in advance, to change their plans.

Many hotel companies, particularly in the luxury end of the business, are continuing to build new properties. Growth of luxury chains is being fueled by steady occupancy and the high room prices hotels have charged during recent years. "It is common in the top market to get hit six months after the middle market," says Horst Schulze, co-chairman of Atlanta's Ritz-Carlton Hotel Co., mostly owned by Marriott.

Mr. Schulze said the impact of the economic slowdown hasn't shown up in Ritz-Carlton's occupancy rates. "We know very clearly what our occupancy will be three months from now," he said

Still, among all hotels, the slowdown is apparent in New York and Boston, UBS Warburg analyst Keith Mills said. Those were some of last year's hottest markets, where developers rushed to open new high-end hostelries. Ira Drake, an owner of trendy properties, such as the Mercer hotel in Manhattan, said last week he is curbing his expectations for the new luxury Chambers hotel he plans to open in New York in coming weeks.

Mr. Mills predicted the industry's average revenue per available room, a common measure of growth in the industry, will rise 4% in 2001, compared with 5.5% last year. PricewaterhouseCoopers is less optimistic, predicting revenue per available room will go up only 3.1% this year. Mr. Hanson recently told clients that travelers will fill fewer rooms for at least the first two quarters of this year. But, he says, the Federal Reserve's recent interest-rate cuts could begin to boost hotel growth toward the end of the year and in early 2002.

SOURCE: Wall Street Journall Online

STORY by Christina Binkley