Here's What Has Marriott More Excited Than Ever

The travel industry has seen good times for a long while now, and companies like hotel giant Marriott International (NASDAQ: MAR) have reaped the rewards from increased demand for its rooms from both business customers and leisure travelers. The company's acquisition of Starwood Hotels & Resorts proved to be well-timed, and despite the extensive efforts necessary to integrate Starwood with Marriott's existing network of properties, the results have generally been favorable.

Coming into Wednesday's first-quarter financial report, Marriott investors fully expected that the favorable environment would continue and help drive financial performance higher. The hotel company didn't disappoint on that front, and increases to its guidance for the full 2018 year point to the opportunities that Marriott sees as strategic goals for the remainder of the year and beyond.

Marriott keeps moving forward

Marriott's first-quarter results were strong. Revenue as adjusted for cost reimbursements climbed 5% to $1.23 billion, which outpaced the 3% growth rate that most investors were looking for from Marriott. Adjusted net income jumped 30% to $487 million, and that resulted in adjusted earnings of $1.34 per share, better than the consensus forecast among those following the stock by $0.12 per share.

The performance from Marriott was consistent with how it looked in terms of fundamental metrics. Comparable systemwide revenue per available room was higher by 3.6% on a worldwide basis, with international operations outperforming its North American growth by a margin of 7.5% to 2%. Marriott reported 11% growth in base management and franchise fees as well as worldwide incentive management fees. The boost in those fees came from higher revenue overall, as well as higher credit card branding fees, favorable foreign exchange impacts, and stronger profits at its Asia-Pacific properties. A big 17% boost in overhead expenses came largely as a consequence of the additional retirement contributions of up to $1,000 that U.S. employees received as Marriott's response to the tax reform bill's passage in late 2017.

In terms of its hotel network, Marriott kept expanding. The company added 100 new properties with nearly 15,000 rooms during the quarter, bringing the size of its overall portfolio to nearly 6,600 properties with almost 1.27 million rooms. The size of Marriott's development pipeline stayed relatively constant, with more than 2,700 properties and almost 465,000 rooms planned for the future.

CEO Arne Sorenson was happy with how Marriott did. The CEO noted that revenue per available room ended up "exceeding the high end of our expectations for the first quarter and reflecting solid economic growth around the world." Sorenson also pointed to new contracts in the luxury and upscale segments that will give Marriott a lot more exposure to the upper end of the hotel spectrum.

What's ahead for Marriott?

Marriott also sees its strategic efforts going well. Sorensen pointed to the successful integration of Starwood, with the intention that loyalty programs will combine in August. That should make frequent guests happier about the move, especially if enhanced benefits emerge from the unification.

Things looked good enough for Marriott to boost its 2018 guidance. The hotel company now sees revenue per available room rising 2% to 3% in North America, 5% to 6% elsewhere, and 3% to 4% worldwide. Gross fee revenue should climb 11% to 12% from year-ago levels, and adjusted earnings of $5.43 to $5.55 per share is up roughly $0.10 to $0.20 from the previous range Marriott provided.

Second-quarter guidance wasn't entirely satisfying for investors. Marriott projects $1.34 to $1.36 in earnings per share, which is just shy of the consensus forecast for $1.38 per share. Yet 3% to 4% rises in revenue per available room on a worldwide basis would be fairly strong.

Marriott investors kept their attention on the near-term guidance, and the stock fell 1% in premarket trading Thursday following the Wednesday afternoon announcement. For longer-term investors, Marriott is on track with its strategic vision, and strong conditions look likely to persist throughout 2018 and into future years.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Marriott International. The Motley Fool has a disclosure policy.