Marriott Profit Plunges, Some Jobs Cut
Marriott International's third quarter profit plunged 28 percent and executives at the Bethesda firm said today that the credit crisis and deteriorating economy would force them to reduce staffing, slash share repurchases, and possibly cancel or delay some projects.
Chief financial officer Arne Sorenson used the beginning of a conference call with analysts to urge the federal government to pass the comprehensive bailout being considered on Friday by the House of Representatives, saying that "It is important the plan be big and enacted very, very soon."
"Without action, the resulting credit squeeze could threaten business in our industry and many others," Sorenson said. "There are thousands, maybe tens of thousands of jobs at stake in our company alone and we are typical."
Marriott, one of the largest employers in the region, could not yet be specific about its plans for staff reductions, and Sorenson told analysts only "we'll have some severance expenses in the fourth quarter."
Marriott has already consolidated some jobs and made spending cuts in several areas of its operations.
For the third quarter, Marriott earned $94 million (26 cents a share), down from $131 million (33 cents) a year ago. The company also lowered its 2008 full-year earnings projections from a best-case scenario of $1.88 per share to $1.68 a share. Analysts had previously been expecting $1.78 a share. Marriott expects worldwide revenue per available room, a key measure of lodging business strength, to decline 1 to 3 percent for the year.
The company predicted that 2009 would "remain unusually challenging."
"It's pretty bleak," said Robert LaFleur, an analyst with Susquehanna Financial Group. "I can't say I'm surprised at the outlook given what's going on in the economy. It came across as bleaker than anyone was expecting."
Marriott has seen weakness it its leisure travel all year and is now seeing that weakness extend to corporate bookings. "I don't think there is a category of business that we can look at and say is strong at the moment," Sorenson said.
That is especially true for Marriott's timeshare business, which saw contract sales down 13 percent in the quarter. Marriott, which finances timeshare purchases and then sells the loans to Wall Street as securities, said it was having difficulty satisfactorily selling those notes.
The company, like many other large businesses in the United States, has also encountered a tightened financing environment for its operations. It has a $2.4 billion revolving loan, and Sorenson said the firm has drawn down about $900 million. It is the second time Marriott has tapped the loan since the early 1990s. The other: After the terrorist attacks of Sept. 11, 2001.
"As we wait for improved liquidity in the marketplace we have ample cushion under the $2.4 billion revolver, which is effective until 2012," Sorenson said.
LaFleur, the Susquehanna analyst, said Marriott has a solid balance sheet, with $117 million in cash at the end of the third quarter. "They have plenty of money to pay their debt service," he said. "The balance sheet isn't an issue."
- Michael S. Rosenwald
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