Marriott Results

Marriott International Reports Second Quarter 2018 Results

  • Second quarter reported diluted EPS totaled $1.71, a 34 percent increase from prior year results. Second quarter adjusted diluted EPS totaled $1.73, a 56 percent increase over second quarter 2017 adjusted results.  Adjusted results exclude merger-related adjustments, cost reimbursement revenue, reimbursed expenses, and an adjustment to the Avendra gain;
  • During the 2018 second quarter, EPS included $0.26 from gains on asset sales ($119 million pretax reflected in Gains and other income, net and Equity in earnings). During the 2017 second quarter, EPS included $0.04 from the gain on an asset sale ($24 million pretax reflected in Gains and other income, net);
  • To date, the company has recycled nearly $1.8 billion of capital since the acquisition of Starwood Hotels & Resorts on September 23, 2016, including $423 million of capital recycling in the second quarter of 2018;
  • Second quarter 2018 comparable systemwide constant dollar RevPAR rose 3.8 percent worldwide, 5.7 percent outside North America and 3.1 percent in North America;
  • The company added a record 23,000 rooms during the second quarter, including roughly 2,900 rooms converted from competitor brands and approximately 10,900 rooms in international markets;
  • At quarter-end, Marriott’s worldwide development pipeline increased to roughly 466,000 rooms, including approximately 41,500 rooms approved, but not yet subject to signed contracts;
  • Second quarter reported net income totaled $610 million, a 25 percent increase from prior year results. Second quarter adjusted net income totaled $619 million, a 46 percent increase over prior year adjusted results;
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $939 million in the quarter, a 15 percent increase over second quarter 2017 adjusted EBITDA;
  • Marriott repurchased 6.2 million shares of the company’s common stock for $850 million during the second quarter. Year-to-date through August 6, the company has repurchased 14.1 million shares for $1.9 billion.
Marriott International, Inc. (NASDAQ: MAR) yesterday reported second quarter 2018 results.

Arne M. Sorenson, president and chief executive officer of Marriott International, said, “We were pleased with our performance in the quarter across the board.  Worldwide constant dollar RevPAR grew nearly 4 percent in the second quarter, with particularly strong transient demand in many markets outside North America.  In North America, solid group business allowed us to drive higher room rates in the quarter.

“Our owners opened more than 82,000 rooms over the last 12 months, yielding net rooms growth of 5.7 percent.  Over 40 percent of these gross room additions are located outside North America and more than one-third are in upper-upscale and luxury tiers.  Our development pipeline increased to roughly 466,000 rooms at quarter-end.

“We are excited to introduce one set of unified benefits across our three loyalty programs on August 18, creating an incredibly rich program in which members, on average, will earn 20 percent more points for every dollar spent.  Members will find it easier to redeem points, achieve elite status, and book stays across the entire portfolio on each of our websites and apps or by calling our customer engagement centers.  Our credit card partners, JPMorgan Chase and American Express, are offering new and refreshed co-branded credit cards in the U.S., providing valuable perks and more ways to earn points when using the cards for stays worldwide.

“Since we acquired Starwood, we have recycled capital totaling nearly $1.8 billion, exceeding our goal of recycling $1.5 billion by year-end 2018.   For full year 2018, we expect to return more than $3.1 billion to shareholders through share repurchases and dividends.  To date this year, we have already returned $2.2 billion to shareholders.”

Second Quarter 2018 Results

In the 2018 first quarter, the company adopted Accounting Standards Update 2014-09.  Please see the “Accounting Standards Update” section of this release for more information.

Marriott’s reported net income totaled $610 million in the 2018 second quarter, a 25 percent increase from 2017 second quarter reported net income of $489 million.  Reported diluted earnings per share (EPS) totaled $1.71 in the quarter, a 34 percent increase from reported diluted EPS of $1.28 in the year-ago quarter.

Second quarter 2018 adjusted net income totaled $619 million, a 46 percent increase over 2017 second quarter adjusted net income of $425 million.  Adjusted net income excludes merger-related adjustments, cost reimbursement revenue, reimbursed expenses, and an adjustment to the Avendra gain.  Adjusted diluted EPS in the second quarter totaled $1.73, a 56 percent increase from adjusted diluted EPS of $1.11 in the year-ago quarter.  See page A-3 for the calculation of adjusted results.

Base management and franchise fees totaled $775 million in the 2018 second quarter, a 12 percent increase over base management and franchise fees of $693 million in the year-ago quarter.  The year-over-year increase in these fees is primarily attributable to higher RevPAR, unit growth, and higher credit card branding fees.

Second quarter 2018 incentive management fees totaled $176 million, a 14 percent increase compared to incentive management fees of $155 million in the year-ago quarter.  The year-over-year increase was largely due to higher net house profit at properties in North America and the Asia Pacific region.

Owned, leased, and other revenue, net of direct expenses, totaled $89 million in the 2018 second quarter, compared to $98 million in the year-ago quarter.  The year-over-year decrease largely reflects the $21 million negative impact from hotels sold during or after the second quarter of 2017, including in the second quarter of 2018, partially offset by stronger results at a few owned and leased hotels in North America and Europe.  Results in the 2017 second quarter included $5 million of business interruption proceeds.

General, administrative, and other expenses for the 2018 second quarter totaled $217 million, compared to $234 million in the year-ago quarter.  The year-over-year $17 million decrease largely reflects integration-related general and administrative cost savings.

Gains and other income, net, totaled $114 million in the 2018 second quarter, reflecting $67 million of gains associated with the sale of two hotels in Fiji and two hotels in North America, as well as $42 million of gains associated with the sale of the company’s equity interests in joint ventures in the Europe, Asia Pacific, and Caribbean & Latin America regions.  Gains and other income, net, totaled $25 million in the 2017 second quarter, reflecting a $24 million gain on the sale of the Charlotte Marriott City Center.

Equity in earnings for the second quarter totaled $21 million compared to $12 million in the year-ago quarter.  The 2018 second quarter included a $10 million gain on the sale of a hotel in a North American joint venture.

Interest expense, net, totaled $79 million in the second quarter compared to $65 million in the year-ago quarter.  The increase was largely due to higher interest rates and debt balances, and lower interest income.

The provision for income taxes totaled $186 million in the second quarter, a 23.3 percent effective tax rate, compared to $227 million in the year-ago quarter, a 31.7 percent effective tax rate.  The lower effective rate in the 2018 second quarter largely reflects the effects of the U.S. Tax Cuts and Jobs Act of 2017.

For the second quarter, adjusted EBITDA totaled $939 million, a 15 percent increase over second quarter 2017 adjusted EBITDA of $820 million.  Compared to the prior year, adjusted EBITDA for the second quarter of 2018 reflects the $17 million negative impact from sold hotels.  See page A-11 for the adjusted EBITDA calculations.

Second Quarter 2018 Results Compared to May 8, 2018 Guidance

On May 8, 2018, the company estimated gross fee revenues for the second quarter would be $935 million to $945 million.  Actual gross fee revenues of $951 million in the quarter were higher than estimated, largely reflecting greater than expected incentive fees at properties in North America and Europe, and better than expected fees from franchised properties.

Marriott estimated owned, leased, and other revenue, net of direct expenses, for the second quarter would total approximately $80 million.  Actual results of $89 million in the quarter were higher than estimated, largely due to higher than expected termination fees.

The company estimated general, administrative, and other expenses for the second quarter would total approximately $250 million.  Actual expenses of $217 million in the quarter were lower than expected largely due to lower than anticipated incremental profit-sharing contributions and, to a lesser extent, timing.

The company estimated gains and other income for the second quarter would total approximately $10 million.  Actual gains of $114 million in the quarter were higher than expected, due to asset sales.

The company estimated equity in earnings for the second quarter would total approximately $10 million.  Actual equity in earnings of $21 million in the quarter were higher than expected, reflecting a $10 million gain on the sale of a hotel in a North American joint venture.

The company estimated adjusted EBITDA for the second quarter would total $880 million to $890 million.  Actual adjusted EBITDA of $939 million was higher than expected due to strong fee revenue, better than expected owned, leased and other revenues, net of direct expenses, and lower than expected general, administrative, and other expenses.

Selected Performance Information

The company added 142 new properties (23,287 rooms) to its worldwide lodging portfolio during the 2018 second quarter, including the Bulgari Hotel Shanghai in China, The Bodrum EDITION in Turkey and the Sheraton Bamako Hotel, the company’s first hotel in Mali.  Sixteen properties (3,117 rooms) exited the system during the quarter.  At quarter-end, Marriott’s lodging system encompassed 6,717 properties and timeshare resorts with nearly 1,287,000 rooms.

At quarter-end, the company’s worldwide development pipeline totaled 2,740 properties with roughly 466,000 rooms, including 1,148 properties with nearly 213,500 rooms under construction and 253 properties with approximately 41,500 rooms approved for development, but not yet subject to signed contracts.

In the 2018 second quarter, worldwide comparable systemwide constant dollar RevPAR increased 3.8 percent (a 5.1 percent increase using actual dollars).  North American comparable systemwide constant dollar RevPAR increased 3.1 percent (a 3.4 percent increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 5.7 percent (a 10.1 percent increase using actual dollars) for the same period.

Worldwide comparable company-operated house profit margins increased 60 basis points in the second quarter, largely due to solid cost controls and synergies from the Starwood acquisition.  House profit margins for comparable company-operated properties outside North America rose 50 basis points and North American comparable company-operated house profit margins increased 60 basis points in the second quarter.

Balance Sheet

At quarter-end, Marriott’s total debt was $8,991 million and cash balances totaled $366 million, compared to $8,238 million in debt and $383 million of cash at year-end 2017.

Marriott Common Stock

Weighted average fully diluted shares outstanding used to calculate both reported and adjusted diluted EPS totaled 357.3 million in the 2018 second quarter, compared to 383.0 million shares in the year-ago quarter.

The company repurchased 6.2 million shares of common stock in the 2018 second quarter for $850 million at an average price of $136.20 per share.  Year-to-date through August 6, the company has repurchased 14.1 million shares for $1.9 billion at an average price of $136.35 per share.

Accounting Standards Update

In the 2018 first quarter, the company adopted Accounting Standards Update 2014-09 (the new revenue standard), which changes the GAAP reporting for revenue and expense recognition for franchise application and relicensing fees, contract investment costs, the quarterly timing of incentive fee recognition, and centralized programs and services, among other items.  While the new revenue standard results in changes to the reporting of certain revenue and expense items, Marriott’s cash flow and business fundamentals are not impacted.  A discussion of revenue recognition changes can be found in the 2017 Form 10-K the company filed on February 15, 2018, which is available on Marriott’s Investor Relations website at http://www.marriott.com/investor.

The company has elected to use the full retrospective method in the adoption of the new revenue standard.  As such, the company’s financial statements in SEC filings will show prior year quarterly and full year results as if the new revenue standard had been adopted on January 1, 2016.  The company furnished a Form 8-K on July 25, 2018, which presented the effect of adoption of the new revenue standard on Marriott’s 2017 quarterly and full year unaudited results of operations and related financial measures.

Outlook

The following outlook for third quarter, fourth quarter, and full year 2018 does not include cost reimbursement revenue, reimbursed expenses, or merger-related costs and charges, which the company cannot precisely forecast.  Full year 2018 outlook also excludes the net tax charge and the increase in the Avendra gain, which were reported in the first half of 2018.

For the 2018 third quarter, Marriott expects comparable systemwide RevPAR on a constant dollar basis in North America will increase 1.5 to 2 percent, reflecting the unfavorable day of the week shift of Independence Day and tough comparisons to last year’s hurricane relief efforts.  The company expects third quarter comparable systemwide RevPAR on a constant dollar basis will increase 5 to 6 percent outside North America and 2.5 to 3 percent worldwide.

The company assumes third quarter 2018 gross fee revenues will total $915 million to $935 million, an 11 to 13 percent increase over third quarter 2017 gross fee revenues of $826 million.

Marriott expects third quarter 2018 owned, leased, and other revenue, net of direct expenses, could total approximately $65 million.  Compared to the year-ago quarter, this estimate reflects the $23 million negative impact from sold hotels, but does not reflect additional asset sales that may occur.  This estimate also reflects an increase in year-over-year results at owned and leased hotels and higher termination fees.

The company assumes third quarter 2018 general, administrative, and other expenses could total $235 million to $240 million.  This estimate assumes a $10 million expense for incremental profit-sharing contributions, as well as professional fees, in part related to changes in accounting rules, and a year-over-year increase in compensation expense.

Marriott expects third quarter 2018 adjusted EBITDA could total $845 million to $870 million, a 5 to 8 percent increase over third quarter 2017 adjusted EBITDA of $806 million.  This estimate reflects the roughly $19 million negative impact from sold hotels, but does not reflect additional asset sales that may occur.  See page A-12 for the adjusted EBITDA calculation.

For the 2018 fourth quarter, Marriott expects comparable systemwide RevPAR on a constant dollar basis in North America will increase 1.5 to 2 percent, reflecting the tough comparisons to last year’s hurricane relief efforts.  The company expects fourth quarter comparable systemwide RevPAR on a constant dollar basis will increase 5 to 6 percent outside North America and 2.5 to 3 percent worldwide.

The company assumes fourth quarter 2018 gross fee revenues will total $929 million to $944 million, an 8 to 10 percent increase over fourth quarter 2017 gross fee revenues of $862 million.

Marriott expects fourth quarter 2018 owned, leased, and other revenue, net of direct expenses, could total approximately $91 million.  Compared to the year-ago quarter, this estimate reflects the $13 million negative impact from sold hotels, but does not reflect additional asset sales that may occur.  This estimate also reflects an increase in year-over-year results at owned and leased hotels, higher termination fees and the purchase of the Sheraton Grand Phoenix.

The company assumes fourth quarter 2018 general, administrative, and other expenses could total $236 million to $241 million.  This estimate assumes an $8 million expense for incremental profit-sharing contributions.

Marriott expects fourth quarter 2018 adjusted EBITDA could total $896 million to $916 million, a 14 to 16 percent increase over fourth quarter 2017 adjusted EBITDA of $789 million.  This estimate reflects the roughly $10 million negative impact from sold hotels, but does not reflect additional asset sales that may occur.  See page A-13 for the adjusted EBITDA calculation.

For the full year 2018, Marriott expects comparable systemwide RevPAR on a constant dollar basis will increase 2 to 3 percent in North America, 5 to 6 percent outside North America, and 3 to 4 percent worldwide.

Marriott anticipates gross room additions of 7 percent, or roughly 5 percent, net of deletions, for full year 2018.  Compared to the estimate of 2018 net room additions the company provided on May 8, this estimate reflects more room deletions, largely due to product quality issues, workout of Legacy-Starwood properties, and a few hotels removed from the system due to severe damage from last year’s natural disasters.

The company assumes full year 2018 gross fee revenues will total $3,640 million to $3,675 million, a 10 to 12 percent increase over 2017 gross fee revenues of $3,295 million.  Full year 2018 estimated gross fee revenues include $360 million to $380 million of credit card branding fees, compared to $242 million for full year 2017.  Compared to the estimate the company provided on May 8, this estimate of gross fee revenues largely reflects unfavorable foreign exchange impact and higher than expected room deletions.  The company anticipates full year 2018 incentive management fees will increase roughly 10 percent over 2017 full year incentive management fees of $607 million.

Marriott expects full year 2018 owned, leased, and other revenue, net of direct expenses, could total approximately $315 million.  This estimate reflects the $80 million negative impact from sold hotels, stronger results at owned and leased hotels, and higher year-over-year termination fees, but does not reflect additional asset sales that may occur.  Compared to the owned, leased, and other revenue, net of direct expenses, estimate the company provided on May 8, this estimate reflects higher than expected termination fees, and the purchase of the Sheraton Grand Phoenix, partially offset by hotels sold in the 2018 second quarter.

The company assumes full year 2018 general, administrative, and other expenses could total $935 million to $945 million.  This estimate assumes a $55 million expense for the company’s incremental profit-sharing contributions.  This expense will not recur in 2019.  Compared to the estimate the company provided on May 8, this general, administrative, and other expenses estimate reflects lower than anticipated incremental profit-sharing contributions, partially offset by increases in professional fees, in part related to changes in accounting rules, and higher compensation expense.

Marriott expects full year 2018 gains and other income could total approximately $172 million, reflecting assets sold to date.

Marriott expects full year 2018 adjusted EBITDA could total $3,450 million to $3,495 million, a 10 to 12 percent increase over 2017 adjusted EBITDA of $3,131 million.  This estimate reflects the roughly $67 million negative impact from hotels sold in 2017 and to date in 2018, but does not reflect additional asset sales that may occur in 2018.  See page A-14 for the adjusted EBITDA calculation.

Third Quarter 20181 Fourth Quarter 20181 Full Year 20181
Gross fee revenues $915 million to $935 million $929 million to $944 million $3,640 million to $3,675 million
Contract investment amortization Approx. $15 million Approx. $14 million Approx. $60 million
Owned, leased and other          revenue, net of direct expenses Approx. $65 million Approx. $91 million Approx. $315 million
Depreciation, amortization, and other expenses Approx. $60 million Approx. $53 million Approx. $225 million
General, administrative, and other expenses $235 million to $240 million $236 million to $241 million $935 million to $945 million
Operating income $665 million to $690 million $712 million to $732 million $2,725 million to $2,770 million
Gains and other income Approx. $3 million Approx. $2 million Approx. $172 million
Net interest expense Approx. $85 million Approx. $76 million Approx. $310 million
Equity in earnings (losses) Approx. $7 million Approx. $9 million Approx. $50 million
Earnings per share $1.27 to $1.32 $1.47 to $1.52 $5.81 to $5.91
Core tax rate2

23.9 percent

 

1The outlook provided in this table does not include merger-related costs and charges, cost reimbursement revenue or reimbursed expenses. Full year 2018 outlook excludes the net tax charge resulting from the Tax Act and the increase in the Avendra gain, which were reported in the first half of 2018.

2Guidance for Full Year 2018 reflects the impact of employee stock-based compensation excess tax benefits.  The company expects the effective tax rate will be 24.5 percent for Third Quarter 2018, 20.7 percent for Fourth Quarter 2018, and 21.7 percent for Full Year 2018.

The company expects investment spending in 2018 will total approximately $800 million to $900 million, including approximately $225 million for maintenance capital and $255 million for the purchase of the Sheraton Grand Phoenix.  Investment spending also includes other capital expenditures (including property acquisitions), new mezzanine financing and mortgage notes, contract acquisition costs, and equity and other investments.  Assuming this level of investment spending and no additional asset sales, more than $3.1 billion could be returned to shareholders through share repurchases and dividends in 2018.



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