Morning Note: Market news and updates from Marriott International and engineer Weir Group

Market News

The dollar was fairly steady as the clock ticks down to a tight US election. With polls showing Americans narrowly split between Trump and Harris, the likelihood of a disputed result may drag the vote count out for weeks, spurring a potential rise in volatility.

US equities drifted lower last night – S&P 500 (-0.3%); Nasdaq (-0.3%) – while bonds regained some of their recent lost ground – the 10-year Treasury currently yields 4.30%. Gold trades at $2,740 an ounce. US Senators Elizabeth Warren and John Hickenlooper urged the Fed to lower rates by 50 basis points to alleviate housing costs. Boeing workers voted to accept a new labour contract and end its strike.

In Asia this morning, equities were firm – Nikkei 225 (+1.1%); Hang Seng (+2.1%); Shanghai Composite (+2.3%) – boosted by positive headlines from China. The Caixin services PMI hit 52, well above the 50.5 estimate as activity expanded at the fastest pace since July.

The FTSE 100 is currently little changed at 8,189. October BRC like-for-like retail sales only rose by 0.3%, well below the expected increase of 1.4%. The weaker performance reflects consumer caution ahead of Black Friday promotions and a later-than-usual school half-term break. November is expected to see a stronger performance. Consumer sentiment was also affected by ongoing uncertainty around the Budget and rising energy costs.

A third of Britain’s official “shopping basket” has slipped into deflation, providing another green light for the BOE to cut rates. The share of items that are cheaper than a year earlier is the highest since spring 2021, Bloomberg analysis showed. Sterling trades at $1.2981 and €1.1917.

Brent Crude trades at $75.15 a barrel. Macquarie said OPEC+’s decision to delay its oil output increase casts doubt on its commitment to return supply at all next year.

Source: Bloomberg

Company News

Yesterday afternoon, Marriott International released its Q3 results. Earnings were slightly below market expectations and the group once again trimmed its full-year guidance primarily as a result of weak domestic travel demand in the US and China. However, the group initiated a new cost control programme and upgraded its room growth forecast. In response, the shares were marked down by 2%. Industry peer IHG, which reported results a couple of weeks ago, fell by 1%.

Marriott is the world’s largest hotel company, with 9,100 properties in 142 countries and territories. The company is a fee-driven, asset-light operator with a focus on franchising and management contracts. The group’s 30 leading brands are skewed toward the mid-scale to luxury end of the market, and include: Ritz-Carlton, Marriott, St Regis, Le Meridien, Sheraton, MGM Collection, and City Express. At the end of September, the company had more than 1.67m rooms, around a 7% global market share. The group’s travel and loyalty programme, Marriott Bonvoy, now boasts more than 210m global members.

In the three months to 30 September, global revenue per available room (RevPAR) – the key measure of industry performance – grew by 3.0% in constant currency. This was below the previous quarter and at the lower end of the group’s 3%-4% guidance range. Occupancy grew by 0.3 percentage points to 72.3% and average daily rate (ADR) was up 2.5% to $182.24.

The Group segment remained the standout performer, with global Group RevPAR rising 10% in the quarter and on pace to rise 8% for the full year. RevPAR for the business transient segment continued to grow nicely in the quarter, while leisure transient RevPAR was flat year over year, but still well ahead of pre-pandemic levels.

In the US & Canada, RevPAR grew by 2.1%, a slowdown compared to the 3.9% growth in the previous quarter. International markets RevPAR rose by 5.4%, with mid to high single digit growth in all regions except China which fell by 7.9%.

The group continued to expand its estate, adding around 16,000 rooms in the quarter. Net room growth accelerated, with conversions accounting for 40% of additions. The pipeline was 585,000 rooms, including roughly 34,000 pipeline rooms approved, but not yet subject to signed contracts. 56% of rooms in the quarter-end pipeline were in international markets. Around 38% of the pipeline was under construction at the end of the quarter.

Q3 revenue was up by 6% to $6,255m, while the adjusted operating income margin was flat at 62%. Adjusted EPS grew by 6.6% to $2.26, below both the company’s guidance range of $2.27-$2.33 and the market expectation of $2.31.

During the quarter, net debt rose from $12.8bn to $13.2bn. The group continued to buy back its shares, with $1.0bn repurchased in the quarter. Including dividends, the group returned $3.9bn to shareholders in the year to date

For the full year, Worldwide RevPAR is still expected to grow by 3%-4%, however earnings guidance has been trimmed to $9.19-$9.27, versus $9.23-$9.40 previously. Net room growth is now expected to grow by around 6.5%, ahead of the previous guidance of 5.5%-6.0%, while the group is now committed to return $4.4bn to shareholders (up from $4.3bn previously). In the current quarter, RevPAR is expected to grow by 2%-3%, with EPS of $2.31-$2.39.

The group has undertaken a comprehensive initiative to enhance its effectiveness and efficiency which is expected to yield $80m to $90m of annual cost reductions beginning in 2025. This work is also expected to deliver cost savings to the group’s owners and franchisees.

In the medium to long term, we believe the industry has attractive long-term growth potential, and with its scale and strong brands, Marriott should benefit from a ‘survival of the fittest’ bias as many smaller competitors continue to exit the market.

Source: Bloomberg

Weir Group has this morning released its Q3 trading update which highlights an order pipeline converting as expected and cost savings in line with target. Guidance for the full year has been reiterated and, in response, the shares are little changed in early trading.

Weir is one of the world's leading engineering businesses with a purpose to make its mining and infrastructure customers’ operations more sustainable and efficient. The company operates through two divisions. Minerals is a global leader in the provision of mill circuit technology and services as well as the market leader in slurry-handling equipment and associated aftermarket support for abrasive high-wear applications. ESCO is a global leader in ground engaging tools for large mining machines. The division also applies its differentiated technology to infrastructure markets including construction, dredging, and sand and aggregates.

The group’s strategy is to focus on attractive markets underpinned by global demographic changes (population growth, urbanisation, and the rise of the middle class, particularly in Asia), the transition to a low carbon society, and adoption of new technologies in the mining industry to address issues such as declining ore grades and miners’ emissions reduction targets. The group’s technology is used in extreme operating environments that generate significant aftermarket demand for higher-margin spare parts. Although Weir operates in markets which are cyclical and, as a result, profitability can be volatile, the recurring revenue stream provides a degree of resilience.

The group is undertaking a Cumulative Performance Excellence programme which is targetting cumulative savings of £60m by 2026, with £19m achieved to date.

In the latest quarter, against a backdrop of macro-economic uncertainty and geopolitical tension, group orders rose 5% on a constant currency basis, leaving them stable over the first nine months of the year.

Original equipment (OE) orders grew by 15%, with improving demand for expansion projects. Minerals OE rose 19%, reflecting large greenfield order wins and positive underlying momentum, while ESCO dropped 18%, driven by timing of attachment orders with pipeline strong for Q4. The group is capitalising on growing interest for sustainable solutions with major orders received for the Reko Diq project and the OCP expansion as well as good momentum on brownfield projects.

Aftermarket (AM) orders (+2%) were in line with expectations and reflect high levels of activity in core mining markets with the mine specific factors seen in the first half of the year moderating. Minerals AM rose 3%, with favourable trends in hard rock mining, while ESCO dropped 2% due to the phasing of large orders.

Free operating cash flow for the period was positive, leaving net debt lower during the quarter versus the £738m as at 30 June, partly due to the strengthening of Sterling.

Moving into the fourth quarter, the group expects orders to continue to develop positively and has reiterated its 2024 guidance of growth in constant currency revenue and operating profit, together with achievement of its targets for margin (18%) and free operating cash conversion (90%-100%).

Looking further ahead, the group believes the fundamentals for its business are highly attractive. The world is looking to the group’s customers to provide the natural resources needed to support the transition to a net zero economy. This in turn presents Weir with an opportunity to deliver innovative mining technology solutions necessary to meet this challenge, underpinning its ambition to deliver through-cycle mid to high single-digit percentage revenue growth and support margin expansion to 20% in 2026 and beyond.

Source: Bloomberg