Marriott International Reports Second Quarter 2019 Results

HIGHLIGHTS

  • Second quarter reported diluted EPS totaled $0.69, compared to $1.87 in the year-ago quarter.  Second quarter adjusted diluted EPS totaled $1.56, compared to second quarter 2018 adjusted diluted EPS of $1.73.  Reported and adjusted diluted EPS for the 2018 second quarter included $0.26 of asset sale gains;
  • Second quarter 2019 comparable systemwide constant dollar RevPAR rose 1.2 percent worldwide, 2.8 percent outside North America and 0.7 percent in North America;
  • The company added more than 16,000 rooms during the second quarter, including nearly 3,500 rooms converted from competitor brands and approximately 7,500 rooms in international markets;
  • At quarter-end, Marriott’s worldwide development pipeline totaled roughly 2,900 hotels and more than 487,000 rooms, including approximately 40,000 rooms approved, but not yet subject to signed contracts.  Roughly 213,000 pipeline rooms were under construction at the end of the second quarter;
  • Second quarter reported net income totaled $232 million, a 65 percent decrease from prior year results.  Second quarter adjusted net income totaled $525 million, a 15 percent decrease from prior year adjusted results;
  • Adjusted EBITDA totaled $952 million in the quarter, a 1 percent increase over second quarter 2018 adjusted EBITDA;
  • Marriott repurchased 3.8 million shares of the company’s common stock for $500 million during the second quarter.  Year-to-date through August 2, the company has repurchased 12.1 million shares for $1.6 billion.

Marriott International, Inc. (NASDAQ: MAR) today reported solid second quarter 2019 results.

Arne M. Sorenson, president and chief executive officer of Marriott International, said, “Worldwide RevPAR increased 1.2 percent in the second quarter with higher leisure transient demand in Europe, the Caribbean and South America, and the Asia Pacific regions.  Showing great momentum, our worldwide RevPAR index increased 110 basis points in the quarter, the strongest single quarter performance since our acquisition of Starwood in late 2016.

“Our owners and franchisees continue to sign new hotel deals at a rapid pace.  Our development pipeline increased 3 percent in the second quarter, reaching a record 487,000 rooms, including roughly 213,000 rooms under construction.  Today, our pipeline includes five new all-inclusive resorts to be built over the next several years, which will be part of our newly-launched all-inclusive platform.  Recognizing the growing demand for all-inclusive lodging, our platform will create distinctive vacation experiences while leveraging existing brands in our luxury and full-service portfolio.  We expect the platform will grow through both new-build properties and conversions of existing resorts, offering travelers yet another option for earning and redeeming Marriott Bonvoy points.

“Our results in the second quarter highlight the resiliency of our business model and the growing strength of our brands.  Year-to-date through August 2, we have already returned $1.9 billion to shareholders.  For full year 2019, we expect cash returned to shareholders through share repurchases and dividends could approach $3 billion.”

Second Quarter 2019 Results

Marriott’s reported net income totaled $232 million in the 2019 second quarter, compared to 2018 second quarter reported net income of $667 million.  Reported diluted earnings per share (EPS) totaled $0.69 in the quarter, compared to reported diluted EPS of $1.87 in the year-ago quarter.

Second quarter 2019 adjusted net income totaled $525 million, compared to 2018 second quarter adjusted net income of $619 million.  Adjusted diluted EPS in the second quarter totaled $1.56, compared to adjusted diluted EPS of $1.73 in the year-ago quarter.  Adjusted results for the 2018 second quarter include $119 million pre-tax ($0.26 per share) of asset sale gains in gains and other income, net and equity in earnings.  See page A-3 for the calculation of adjusted results.  Adjusted results exclude merger-related costs and charges, cost reimbursement revenue, and reimbursed expenses.  Adjusted results for the 2018 second quarter also exclude an increase to the gain on the sale of Avendra.

Base management and franchise fees totaled $834 million in the 2019 second quarter, an 8 percent increase over base management and franchise fees of $775 million in the year-ago quarter.  The year-over-year increase in these fees is primarily attributable to unit growth, RevPAR growth, and higher branding fees.

Second quarter 2019 incentive management fees totaled $165 million, a 6 percent decrease compared to incentive management fees of $176 million in the year-ago quarter.  The year-over-year decrease largely reflects lower net house profits at North American managed hotels, and unfavorable exchange rates, partially offset by higher net house profits at International managed hotels.

General, administrative, and other expenses for the 2019 second quarter totaled $229 million, compared to $217 million in the year-ago quarter.  The year-over-year change largely reflects an increase in administrative costs. 

In the 2019 second quarter, the company incurred $22 million of expenses and recognized $22 million of insurance recoveries related to the data security incident it disclosed on November 30, 2018.  The expenses and insurance recoveries are reflected in either the reimbursed expenses or merger-related costs and charges lines of the Income Statement, which have been excluded from adjusted net income, adjusted EPS and adjusted EBITDA. 

The company also recorded a $126 million non-tax deductible accrual in the second quarter for the fine proposed by the U.K. Information Commissioner’s Office in relation to the data security incident.  Marriott has the right to respond before the amount of the fine is finally determined and a fine can be issued.  The company intends to respond and vigorously defend its position.  The accrual is reflected in the merger-related costs and charges line of the Income Statement, which has been excluded from adjusted net income, adjusted EPS and adjusted EBITDA. 

Gains and other income, net, totaled $1 million, compared to $114 million in the year-ago quarter.  Gains and other income, net, in the 2018 second quarter largely reflected $109 million of gains from asset sales.  

Interest expense, net, totaled $96 million in the second quarter compared to $79 million in the year-ago quarter.  The increase is largely due to higher debt balances.

Equity in earnings for the second quarter totaled $0 million, compared to $21 million in the year-ago quarter.  The 2019 second quarter included a $4 million asset impairment.  The 2018 second quarter included a $10 million gain on the sale of a hotel in a North American joint venture.

Second Quarter 2019 Results Compared to May 10, 2019 Guidance

On May 10, 2019, the company estimated gross fee revenues would total $990 million to $1,010 million in the second quarter.  Actual gross fee revenues totaled $999 million in the quarter.

The company estimated owned, leased, and other revenue, net of direct expenses, for the second quarter would total approximately $80 million.  Actual results of $87 million in the quarter were higher than estimated, largely due to the timing of non-operating expenses.

The company estimated equity in earnings for the second quarter would total approximately $5 million.  Actual equity in earnings of $0 million in the quarter were lower than expected, largely reflecting a $4 million asset impairment.

The company estimated adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter would total $940 million to $965 million.  Actual adjusted EBITDA totaled $952 million.  See page A-11 for the adjusted EBITDA calculations.

Selected Performance Information

The company added 112 new properties (16,181 rooms) to its worldwide lodging portfolio during the 2019 second quarter, including The Westin Desaru Coast Resort in Malaysia, W Muscat in Oman, and AC Hotel Riga, the company’s first hotel in Latvia.  Fifteen properties (2,321 rooms) exited the system during the quarter.  At quarter-end, Marriott’s lodging system encompassed 7,100 properties and timeshare resorts with nearly 1,346,000 rooms.

At quarter-end, the company’s worldwide development pipeline totaled 2,919 properties with more than 487,000 rooms, including 1,150 properties with roughly 213,000 rooms under construction and 253 properties with approximately 40,000 rooms approved for development, but not yet subject to signed contracts.

In the 2019 second quarter, worldwide comparable systemwide constant dollar RevPAR increased 1.2 percent (a 0.3 percent decrease using actual dollars).  North American comparable systemwide constant dollar RevPAR increased 0.7 percent (a 0.4 percent increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 2.8 percent (a 2.4 percent decrease using actual dollars) for the same period.

Worldwide comparable company-operated house profit margins decreased 10 basis points in the second quarter, reflecting solid cost controls and synergies from the Starwood acquisition offset by the impact of modest RevPAR growth and higher wages.  House profit margins for international comparable company-operated properties increased 30 basis points and North American comparable company-operated house profit margins decreased 50 basis points in the second quarter.

Balance Sheet

At quarter-end, Marriott’s total debt was $10,414 million and cash balances totaled $284 million, compared to $9,347 million in debt and $316 million of cash at year-end 2018.

During the second quarter, the company extended the expiration of its credit facility to June 2024 and increased the facility from $4 billion to $4.5 billion.

Marriott Common Stock

Weighted average fully diluted shares outstanding used to calculate both reported and adjusted diluted EPS totaled 336.4 million in the 2019 second quarter, compared to 357.3 million shares in the year-ago quarter.

The company repurchased 3.8 million shares of common stock in the 2019 second quarter for $500 million at an average price of $132.39 per share.  Year-to-date through August 2, the company has repurchased 12.1 million shares for $1.6 billion at an average price of $128.88 per share.

2019 Outlook

The following outlook for third quarter, fourth quarter, and full year 2019 does not include merger-related costs and charges, cost reimbursement revenue or reimbursed expenses, which the company cannot accurately forecast and which may be significant.

For the 2019 third quarter, Marriott expects comparable systemwide RevPAR on a constant dollar basis will increase 1 to 2 percent in North America, 2 to 3 percent outside North America, and 1 to 2 percent worldwide.

The company anticipates third quarter 2019 gross fee revenues will total $945 million to $960 million, a 1 to 3 percent increase over third quarter 2018 gross fee revenues of $932 million, reflecting lower residential branding fees year-over-year.  The company anticipates third quarter 2019 incentive management fees will decrease at a mid to high single-digit rate compared to third quarter 2018 incentive management fees of $151 million due to modest expected RevPAR growth in North America and tough comparisons to the 2018 World Cup in Russia.

Marriott anticipates third quarter 2019 owned, leased, and other revenue, net of direct expenses, could total $70 million.  This estimate reflects $10 million to $15 million of lower termination fees year-over-year.  This outlook for the 2019 third quarter does not reflect any additional asset sales that may occur during the quarter.

The company expects third quarter 2019 general, administrative, and other expenses could total $220 million to $225 million. General, administrative, and other expenses in the 2018 third quarter included a $7 million expense for the company’s supplemental investments in its workforce, which is not expected to repeat in 2019.

The company anticipates gains and other income, net could total $10 million in the 2019 third quarter, largely reflecting a $9 million gain on an asset sale that was completed early in the third quarter.

Marriott expects third quarter 2019 diluted EPS could total $1.47 to $1.51, an 11 to 14 percent decline compared to third quarter 2018 adjusted diluted EPS of $1.70.  Third quarter 2018 adjusted results included $71 million pre-tax ($0.26 per share) of asset sale gains in gains and other income, net and equity in earnings.  Third quarter 2019 guidance does not assume any additional asset sale gains beyond the $9 million pre-tax ($0.02 per share) discussed above.

Marriott anticipates third quarter 2019 adjusted EBITDA could total $896 million to $916 million, flat to up 2 percent compared to third quarter 2018 adjusted EBITDA of $900 million.  This estimate does not reflect any additional asset sales that may occur in the third quarter of 2019.  See page A-12 for the adjusted EBITDA calculation.

For the 2019 fourth quarter, Marriott expects comparable systemwide RevPAR on a constant dollar basis will increase 1 to 2 percent in North America, 2 to 3 percent outside North America, and 1 to 2 percent worldwide.

The company assumes fourth quarter 2019 gross fee revenues will total $981 million to $996 million, an 8 to 9 percent increase over fourth quarter 2018 gross fee revenues of $910 million.  The company anticipates fourth quarter 2019 incentive management fees will increase at a mid to high single-digit rate compared to fourth quarter 2018 incentive management fees of $167 million due to international unit growth and easy comparisons to labor strikes in the 2018 fourth quarter.

The company expects fourth quarter 2019 general, administrative, and other expenses could total $249 million to $254 million. General, administrative, and other expenses in the 2018 fourth quarter included a $7 million expense for the company’s supplemental investments in its workforce, which is not expected to repeat in 2019.

Marriott expects fourth quarter 2019 adjusted EBITDA could total $917 million to $937 million, a 6 to 8 percent increase over fourth quarter 2018 adjusted EBITDA of $864 million.  This estimate does not reflect any asset sales that may occur in the fourth quarter of 2019.  See page A-13 for the adjusted EBITDA calculation.

For the full year 2019, Marriott expects comparable systemwide RevPAR on a constant dollar basis will increase 1 to 2 percent in North America, 2 to 3 percent outside North America, and 1 to 2 percent worldwide.

As a result of construction delays in North America and the Middle East and Africa region, Marriott now anticipates net room additions of 5.0 to 5.5 percent for full year 2019, with expected room deletions of 1 to 1.5 percent.

The company expects full year 2019 gross fee revenues will total $3,820 million to $3,850 million, a 5 to 6 percent increase over 2018 gross fee revenues of $3,638 million, including approximately $20 million of unfavorable foreign exchange.  Full year 2019 estimated gross fee revenues include $400 million to $410 million of credit card branding fees, compared to $380 million for full year 2018.  Compared to the estimate the company provided on May 10, this estimate of gross fee revenues largely reflects lower RevPAR growth, additional unfavorable foreign exchange and lower credit card branding fees.  The company anticipates full year 2019 incentive management fees will be flat compared to 2018 full year incentive management fees of $649 million.

Marriott anticipates full year 2019 owned, leased, and other revenue, net of direct expenses, could total $295 million.  This estimate reflects stronger results at owned and leased hotels, offset by approximately $35 million of lower termination fees year-over-year.  This outlook for full year 2019 does not reflect any additional asset sales that may occur during the year. 

The company expects full year 2019 general, administrative, and other expenses could total $920 million to $930 million, flat to down 1 percent from full year 2018 expenses of $927 million.  Full year 2018 general, administrative, and other expenses included a $51 million expense for the company’s supplemental investments in its workforce, which is not expected to repeat in 2019.

The company anticipates full year 2019 diluted EPS could total $5.97 to $6.06, a 2 to 4 percent decline compared to 2018 adjusted diluted EPS of $6.21.  Full year adjusted 2018 results include $183 million pre-tax ($0.44 per share) of asset sale gains in gains and other income, net and $65 million pre-tax ($0.21 per share) of asset sale gains in equity in earnings.  Full year 2019 guidance includes the $9 million pre-tax ($0.02 per share) asset sale gain in gains and other income, net, included in the third quarter 2019 outlook.

Marriott expects full year 2019 adjusted EBITDA could total $3,586 million to $3,626 million, a 3 to 4 percent increase over 2018 adjusted EBITDA of $3,473 million.  See page A-14 for the adjusted EBITDA calculation.

Third Quarter 20191

Fourth Quarter 20191

Full Year 20191

Gross fee revenues

$945 million to $960 million

$981 million to $996 million

$3,820 million to $3,850 million

Contract investment
  amortization

Approx. $15 million

Approx. $16 million

Approx. $60 million

Owned, leased and other         
  revenue, net of direct
  expenses

Approx. $70 million

Approx. $88 million

Approx. $295 million

Depreciation, amortization,
  and other expenses

Approx. $50 million

Approx. $55 million

Approx. $215 million

General, administrative,
  and other expenses

$220 million to $225 million

$249 million to $254 million

$920 million to $930 million

Operating income

$725 million to $745 million

$744 million to $764 million

$2,910 million to $2,950 million

Gains and other income

Approx. $10 million

Approx. $4 million

Approx. $20 million

Net interest expense

Approx. $90 million

Approx. $93 million

Approx. $370 million

Equity in earnings (losses)

Approx. $5 million

Approx. $7 million

Approx. $20 million

Earnings per share – diluted

$1.47 to $1.51

$1.53 to $1.58

$5.97 to $6.06

Effective tax rate

25.0 percent

23.3 percent

22.4 percent

1The outlook provided in this table does not include merger-related costs and charges, cost reimbursement revenue or reimbursed expenses, which the company cannot accurately forecast and which may be significant.

The company expects investment spending in 2019 will total approximately $650 million to $750 million, including approximately $225 million for maintenance capital.  Investment spending also includes other capital expenditures (including property acquisitions), new mezzanine financing and mortgage notes, contract acquisition costs, and equity and other investments.  The company estimates $200 million to $250 million of its 2019 investment spending will be reimbursed or recycled over time.  Assuming this level of investment spending and no additional asset sales, cash returned to shareholders through share repurchases and dividends could approach $3 billion for full year 2019.