12 May 2020

Marriott International Checks In With Earnings Miss

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What’s happening: Shares of Marriott International declined on Monday, after the hotel operator reported its first-quarter earnings far worse than expected.

What happened: The hospitality business around the world has been battered by the coronavirus outbreak, with travel restrictions and lockdowns further intensifying pressure on the industry.

The Bethesda, Maryland-based company witnessed a massive plunge in its business in April, with RevPAR (revenue per available room) tumbling 90% in the month, making it highly challenging for the company to achieve a rebound from the crisis. However, management still sees a glimmer of hope for the company.

How were the results: Marriott’s profit nosedived in the first quarter due to impairment charges and other reserves. However, revenue still exceeded the consensus view.

  • Net income dropped to $31 million, or 9 cents per share, from $375 million, or $1.09 per share in the same quarter last year.
  • On an adjusted basis, the company earned 26 cents per share, widely missing expectations of 80 cents per share.
  • Revenue declined 7% to $4.68 billion for the quarter, but surpassed the consensus estimate of $4.03 billion.

Why it matters: The COVID-19 pandemic has forced millions to stay at home, creating uncertainties for the hospitality industry, which seems to be headed for the worst financial crisis in many years.

Although Marriott reported a 22.5% decline in RevPAR for the quarter, it is planning to add hotel rooms to its list over the next couple of years as construction of these are already under process.

Marriott announced plans to cut or postpone about 45% of its prior spending forecast of up to $800 million for 2020. As of May 8, Marriott had net liquidity of around $4.3 billion, while total debt surged around 12% to $12.23 billion during the quarter.

“We have taken substantial steps to preserve liquidity and mitigate the impact of these extremely low levels of demand,” Chief Executive Officer Arne Sorenson said. He added, “We are confident we have sufficient resources to manage through this evolving situation.”

As a ray of hope, the company is beginning to see some rebound in its bookings for Greater China as the economy is gradually reopening. Occupancy at Marriott hotels in the country climbed above 30%, from below 10% in mid-February. In North America, occupancy at its limited service hotels has also stabilized at around 20% over the past two weeks.

Marriott did not issue any outlook for the year, citing uncertainty due to the coronavirus pandemic.

How the shares responded: Shares of Marriott International fell 5.6% in the regular trading session on Monday following the release of quarterly results. The stock has tumbled 45.6% year to date, performing far worse than the 9.3% decline of the S&P 500.

What to watch: The road ahead is expected to be tough for the hotel business, although there is hope of a gradual recovery. Marriott is expected to witness a rise in domestic bookings in the upcoming quarter following an easing of lockdown and travel restrictions. However, the company’s business may not return to a growth track with these low levels of bookings. The company needs a global reopening of economies to operate its business on a full scale.

The Markets Today

     

Gold may be in focus today, after the safe-haven metal suffered a decline in the previous session.

Context: Gold futures started the week on a lower note with the greenback strengthening on Monday, due to concerns over tensions between the US and China. Investors also assessed the reopening of various businesses across the globe.

Details: With the slowdown in coronavirus infections, various economies around the world are easing lockdown restrictions imposed to curb the spread of the virus. However, with the gradual reopening, the probability of a second wave of infections has increased, which may limit losses for gold.

US President Trump’s administration is gearing up to accuse Chinese government hackers of attempting to steal coronavirus vaccine data from American researchers. Trump also blamed China on Friday of mishandling the COVID-19 pandemic and warned of cancelling the trade deal between the countries.

After rising around 0.8% during the past week, June gold declined 0.9% to settle at $1,698 an ounce on the COMEX. The ICE US Dollar Index, a measure of the greenback’s performance versus a basket of currencies, rose 0.5% to 100.21 on Monday.

Among other metals, July silver declined 0.6% to $15.68 an ounce, after recording a weekly gain of around 6%. July copper fell 1.1% to $2.38 a pound, while July platinum dropped 1% to $781.30 an ounce on Monday.

What to watch: Investors will be keeping an eye on coronavirus numbers, with the US economy easing lockdown restrictions. The reopening of the economy will lower demand for the precious metal. The number of positive COVID-19 cases in the US has surpassed 1,347,380 with around 80,390 deaths.

Other Markets: US indices closed mixed on Monday, with the S&P 500 and Nasdaq 100 up by 0.02% and 0.78%, respectively. The Dow bucked the trend and declined by 0.45%.

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South Africa's unemployment rate, Mexico’s industrial production, India's retail price inflation, manufacturing production and industrial production as well as the US NFIB small business optimism index, inflation rate, Redbook index, government budget and API crude oil stock change.

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