Marriott's worries rattle hotel sector stocks

NEW YORK (AP) — A warning about slowing growth in an otherwise optimistic earnings report for Marriott International Inc. dragged down hotel stocks Thursday.

The Bethesda, Md., hotel company raised its profit expectation for the full year but reined in its prediction for fees for extras like Wi-Fi. It also says demand growth is slowing in the Middle East and in Asia, where economic growth is weakening.

Marriott said it is particularly concerned about demand for higher-end hotels. The company made its prediction as it reported second-quarter net income that rose 6 percent from a year ago. Its shares lost ground after hours and continued their slide Thursday. In late afternoon trading, the stock is down about 6 percent.

Marriott, which also operates Ritz-Carlton hotels, Fairfield Inn & Suites and a slew of other brands, is the first lodging company to report second-quarter results. Its concern about slowing growth overseas — especially in Asia — is particularly worrisome for investors because hotels have been rapidly expanding internationally over the last several years, taking advantage of a rapidly growing middle class.

Just a month ago, Marriott announced plans to have 4,000 hotels in 90 countries across its 14 brands within two years. Much of the growth will be in China, where the company expects to have 100 hotels by 2014, doubling its current number. Starwood Hotels & Resorts Worldwide Inc. two weeks ago said it will also double its presence in China. Starwood's brands include Sheraton, Westin and St. Regis.

But overbuilding is already starting to strain profit. Marriott said in a conference call with analysts and investors Thursday that some spots in China and India are also hurting because there are too many hotel rooms with too little demand. On top of that, weak economic conditions in Europe, India and Hong Kong hurt growth as well, it said.

Deutsche Bank analyst Carlo Santarelli cut his price target on Marriott to $41 from $44. But he expects other hotel companies including Starwood and Hyatt Hotels Corp. to report stronger revenue per available room — a key measure of hotel performance. He recommends investors scoop up beaten-down shares.

Starwood shares lost 5.6 percent, or $2.78, to hit $48.60 in late afternoon trading. Hyatt shares gave up 4.5 percent to land at $34.34.