It is 6 p.m. on a Friday evening, and J. Willard Marriott Jr. is tired. The chief executive of family-controlled Marriott Corp. had begun his day 12 hours earlier, touring company-run flight catering operations at New York's LaGuardia Airport, and his work was still not done.
It is another typical day for Marriott, who annually travels more than 100,000 miles to meet employees and oversee operations. Taking its cue from the top, the company itself has run a similarly exhausting schedule. Executive Vice President Francis "Butch" Cash recalls tasting every item on the menu at 15 of Marriott's Roy Roger's and four competing restaurants in a single day. "You manage by eating around," he said.One result of such aggressive management has been a revolution in the lodging business. While hotels of one type or another have been around for thousands of years, the revolution began in the mid-1950s, with Marriott in the vanguard. Marriott, Holiday Corp. and Ramada Inc. largely mechanized the business.
Drexel Burnham Lambert analyst Daniel Lee estimates that the move has compressed the share of the business held by independents from 80 percent to 45 percent.
Starting from a single hotel in the Washington area, Marriotts now number more than 300. The chain now accounts for one of every three hotels being built in the United States. With the benefits that accompany size - sophisticated reservation systems, marketing and real estate development, among others - Marriott appears to be in a better competitive situation today than ever before. It long ago broadened its business focus from merely hotels to any place a person might temporarily rest. Recent forays include new chains targeting frugal travelers, long-term visitors and aged residents. Meanwhile, it shed the operations outside its area of expertise such as theme parks and cruise lines.
And the frenetic growth traditionally had only a beneficial effect on profits. Marriott is probably better-known on Wall Street for consistent 20 percent annual earnings growth than for its proliferating hotel and restaurant operations. But recently, investors have begun to question whether the Marriott money-machine has started to flag, regressing to a more normal pace. Its stock plunged 25 percent during the crash and has never recovered, meandering along at about $30 a share despite enthralling updates from Wall Street companies on Marriott's promising outlook.
"Most stock analysts love the company, but its share price has underperformed the rest of the market for two years," noted a major institutional investor who divested sizable positions in Marriott, against the advice of analysts.
A result of similar opinions among other fund managers is that Marriott's stock has lost most of its premium. Based on multiples of earnings and other common measures, Marriot sells for about 15 percent to 20 percent more than the average for the Standard & Poor's 500, a commonly used benchmark. In the past, it has typically sold for a 50 percent premium or more.
The decline came despite activity in the hotel market that suggests that the purchase price of prime properties has soared. For instance, just Friday, Grand Metropolitan PLC announced the sale of its Inter-Continental hotel chain to Seibu Saison Group of Japan for $2.27 billion. The hotels had been bought in 1981 from Pan American Airways for just $500 million.
Behind Marriott's diminished luster are factors ranging from technical - Wall Street now favors manufacturers and exporters over companies dependent on consumer dollars - to the more serious.
Marriott's headiest days of growth are behind it. With $7 billion in annual revenues and 210,000 employees, it is difficult to register the same high percentage increases annually. Marriott himself has acknowledged that earnings growth may fade a little, from above 20 percent to the high teens. That is still great for many companies, but quite a lag in comparison to Marriott's traditionally heady performance.
Moreover, some investors have become critical of the quality of Marriott's earnings, noting that the high per-share returns have been bolstered by heavy stock repurchasing, asset sales, and favorable tax shifts.
The average number of shares, for instance, dropped 14 percent between last year's third quarter and this year. While per-share earnings came in precisely on target, up a healthy 19 percent from last year, operating earnings were up only 12 percent.
Significantly, the company is also in the midst of some strategic shifts. Full-service hotels, the primary engine for the company's previous success, are expected be a smaller contributor during the next five years, a result of a saturated market. Marriott plans to add about 30,000 hotel and suite rooms, an increase of about 40 percent, compared to about 70,000 new rooms in its other, less expensive lodging divisions, an increase of more than 200 percent.
One area of unusual promise is retirement communities for the elderly. Though the operation is still in the formative stages, construction has begun on two communities, one was purchased earlier this year, and a number of others are in development. Vice President Cash reckons that revenues for the company in that field should exceed $1 billion annually by the mid-1990s.
At the same time, Marriott is planning a radical revision of part of its restaurant group, likely scrapping the 235 profitable but fading Bob's Big Boy restaurants and replacing them with Allie's, a more health-food-oriented family restaurant now being test-marketed in Southern California.
The more interesting story on Marriott may be in the 1990s. A study by management consultants Horwath and Horwath suggests that heavy building of hotels throughout the early to mid-1980s, induced by the tax code, has ceased. Occupancy will remain flat through the middle of next year and then climb steadily for several years, said Horwath research director Mark Lomanno.
The trend for more of the traffic to go to the larger chains will continue, Lomanno said. And he predicted that the biggest chains will also gain from an industrywide consolidation, shrinking the overall number of major participants. "It will go the route of the airlines," he predicted.
Those changes could benefit Marriott, which has proved adept at expanding. The company, through its share repurchases, clearly is betting on its own success. "Our day will come again," Marriott said.