Marriott International Reports Fourth Quarter 2019 Results

Published on : Thursday, February 27, 2020

Marriott International, Inc.today reported solid fourth quarter 2019 results.

 

Arne M. Sorenson, president and chief executive officer of Marriott International, said, “We are pleased with our performance in 2019. We grew rooms nearly 5 percent, achieved record RevPAR index gains, drove higher guest satisfaction scores, and maintained global hotel profit margins in a low RevPAR growth environment. Our fee-driven, asset light business model and successful asset recycling continued to generate significant excess cash, allowing us to return a total of $2.9 billion to shareholders during the year.

 

“Marriott Bonvoy is driving market share at our hotels by leveraging our industry-leading distribution and powerful brand portfolio. Loyalty members accounted for 52 percent of occupied rooms in 2019, a 250-basis point increase year over year. Our worldwide systemwide RevPAR index for comparable hotels increased 200 basis points in 2019 and rose 240 basis points in the fourth quarter alone. We are increasing our market share of rooms as well, with record signings in 2019 taking our development pipeline to approximately 515,000 rooms at year-end.

 

“Our thoughts are with everyone impacted by the Coronavirus situation. I am particularly proud of our Asia Pacific team as they assist affected customers and fellow associates. To date, the crisis has primarily affected our Asia Pacific region.

 

“Given the fluid nature of the situation, we have not reflected the impact from the outbreak in our base case outlook for this year. For full year 2020, our base case outlook assumes comparable systemwide RevPAR on a constant dollar basis will be flat to up 2 percent, with RevPAR growth in North America around the middle of that range. We assume net rooms additions of 5 to 5.25 percent in 2020.

 

“Given those assumptions, our base case assumes gross fee revenues in 2020 could total $4 billion, a 5 percent increase compared to 2019. However, assuming the current low occupancy rates in the Asia Pacific region continue, with no meaningful impact outside the region, we estimate the company could earn roughly $25 million in lower fee revenue per month, compared to our 2020 base case outlook.”

 

Fourth Quarter 2019 Results
Marriott’s reported operating income totaled $274 million in the 2019 fourth quarter, compared to 2018 fourth quarter reported operating income of $422 million. Reported net income totaled $279 million in the 2019 fourth quarter, compared to 2018 fourth quarter reported net income of $317 million. Reported diluted earnings per share (EPS) totaled $0.85 in the quarter, compared to reported diluted EPS of $0.92 in the year-ago quarter.

 

Adjusted operating income in the 2019 fourth quarter totaled $603 million, compared to 2018 fourth quarter adjusted operating income of $680 million. Adjusted operating income in the 2019 fourth quarter includes impairment charges of $114 million in depreciation, amortization, and other expenses.

 

Fourth quarter 2019 adjusted net income totaled $517 million, compared to 2018 fourth quarter adjusted net income of $497 million. Adjusted diluted EPS in the fourth quarter totaled $1.57, compared to adjusted diluted EPS of $1.44 in the year-ago quarter. Results for the 2019 fourth quarter include the benefit of $134 million pretax ($0.32 per share) of asset sale gains in gains and other income, net, partially offset by $114 million pretax ($0.26 per share) of impairment charges in depreciation, amortization, and other expenses. Results for the 2018 fourth quarter include a $6 million pretax ($0.02 per share) asset sale gain in gains and other income, net. Adjusted results exclude merger-related costs and charges, cost reimbursement revenue, and reimbursed expenses. See page A-3 for the 2019 adjusted diluted EPS calculation.

 

Base management and franchise fees totaled $799 million in the 2019 fourth quarter, an 8 percent increase over base management and franchise fees of $743 million in the year-ago quarter. The year-over-year increase in these fees is primarily attributable to rooms growth, RevPAR growth, and higher credit card branding fees.

 

Fourth quarter 2019 incentive management fees totaled $175 million, a 5 percent increase compared to incentive management fees of $167 million in the year-ago quarter. The year-over-year increase largely reflects new units and higher net house profits at managed hotels in North America and Europe, partially offset by lower net house profits in Hong Kong.

 

Depreciation, amortization, and other expenses for the 2019 fourth quarter totaled $179 million, compared to $62 million in the year-ago quarter. The year-over-year change largely reflects a $99 million impairment charge associated with a leased hotel in North America and a $15 million impairment charge related to the sale of a hotel in North America.

 

General, administrative, and other expenses for the 2019 fourth quarter totaled $267 million, compared to $242 million in the year-ago quarter. The year-over-year change largely reflects an increase in development and legal costs, higher bad debt expense, and unfavorable foreign exchange.

 

In the 2019 fourth quarter, the company incurred $14 million of expenses and recognized $7 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, both of which have been excluded from adjusted net income, adjusted EPS and adjusted EBITDA.

 

Based on the ongoing proceeding involving the U.K. Information Commissioner’s Office (ICO), in the fourth quarter the company also reduced to $65 million the non-tax deductible accrual recorded in the second quarter of 2019 for the fine proposed by ICO in July 2019 in relation to the data security incident. The reduction of 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 $138 million, compared to $3 million in the year-ago quarter. Gains and other income, net, in the 2019 fourth quarter primarily reflects $134 million of gains associated with the sales of two hotels in North America.

 

Fourth Quarter 2019 Results Compared to November 5, 2019 Guidance
On November 5, 2019, the company estimated gross fee revenues would total $960 million to $970 million in the fourth quarter. Actual gross fee revenues totaled $974 million in the quarter, largely reflecting higher than expected incentive management fees in North America.

 

The company estimated owned, leased, and other revenue, net of direct expenses, for the fourth quarter would total approximately $85 million. Actual results of $92 million in the quarter were higher than estimated, largely due to higher termination fees.

 

The company estimated depreciation, amortization, and other expenses for the fourth quarter would total approximately $55 million. Actual expenses of $179 million in the quarter were higher than estimated, largely due to asset impairments of $114 million and contract write-offs related to terminated hotels.

 

The company estimated general, administrative, and other expenses for the fourth quarter would total $250 million to $255 million. Actual expenses of $267 million in the quarter were higher than estimated, largely due to legal costs, bad debt expenses, and foreign exchange.

 

Selected Performance Information
The company added 173 new properties (25,399 rooms) to its worldwide lodging portfolio during the 2019 fourth quarter, including W Ibiza in Spain, JW Marriott Maldives, and North Island, a Luxury Collection Resort, Seychelles. Twenty-nine properties (6,400 rooms) exited the system during the quarter. At year-end, Marriott’s global lodging system totaled more than 7,300 properties and timeshare resorts, with roughly 1,380,000 rooms.

 

At year-end, the company’s worldwide development pipeline totaled 3,039 properties with approximately 515,000 rooms, including 1,207 properties with over 220,000 rooms under construction and 133 properties with roughly 23,000 rooms approved for development, but not yet subject to signed contracts.

 

In the 2019 fourth quarter, worldwide comparable systemwide constant dollar RevPAR increased 1.1 percent (a 0.8 percent increase using actual dollars). North American comparable systemwide constant dollar RevPAR increased 0.9 percent (a 0.9 percent increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 1.5 percent (a 0.6 percent increase using actual dollars) for the same period.

 

Worldwide comparable company-operated house profit margins increased 20 basis points in the fourth quarter, reflecting the impact of solid cost controls and synergies from the Starwood acquisition, partially offset by 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 increased 10 basis points in the fourth quarter.

 

For full year 2019, worldwide comparable systemwide constant dollar RevPAR increased 1.3 percent (a 0.4 percent increase using actual dollars). North American comparable systemwide constant dollar RevPAR increased 1.0 percent (a 0.9 percent increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 2.2 percent (a 1.0 percent decrease using actual dollars) for the same period.

 

Worldwide comparable company-operated house profit margins were flat for full year 2019, largely due to solid cost controls and synergies from the Starwood acquisition, offset by modest RevPAR growth and higher wages. House profit margins for comparable company-operated properties outside North America rose 20 basis points and North American comparable company-operated house profit margins decreased 20 basis points year over year.

 

Balance Sheet
At year-end, Marriott’s total debt was $10.94 billion and cash balances totaled $225 million, compared to $9.347 billion in debt and $316 million of cash at year-end 2018.

 

Marriott Common Stock
Weighted average fully diluted shares outstanding used to calculate both reported and adjusted diluted EPS totaled 330.4 million in the 2019 fourth quarter, compared to 345.7 million shares in the year-ago quarter.

 

The company repurchased 3.1 million shares of common stock in the 2019 fourth quarter for $432 million at an average price of $140.00 per share. For full year 2019, Marriott repurchased 17.3 million shares for $2.3 billion at an average price of $130.79 per share. Year to date through February 25, the company has repurchased 1.0 million shares for $150 million at an average price of $145.42 per share.

 

Coronavirus
Due to the uncertainty regarding the duration and extent of the Coronavirus outbreak, Marriott cannot fully estimate the financial impact from the virus, which could be material to first quarter and full year 2020 results. As such, the company is providing a base case outlook for the first quarter and full year 2020, which does not reflect any impact from the outbreak.

 

Assuming the current low occupancy rates in the Asia Pacific region continue, with no meaningful impact outside the region, Marriott estimates the company could earn roughly $25 million in lower fee revenue per month, compared to its 2020 base case outlook. Room additions for the current year could also be delayed as a result of the Coronavirus outbreak.

 

2020 Base Case Outlook, Not Including Impact from the Coronavirus
The following base case outlook for first quarter and full year 2020 does not reflect any impact from the Coronavirus outbreak, merger-related costs and charges, cost reimbursement revenue, or reimbursed expenses, each of which the company cannot forecast with sufficient accuracy, and which may be significant. The base case outlook for first quarter and full year 2020 does not reflect any additional asset sales that may occur during the year.

 

For the 2020 first quarter, Marriott assumes comparable systemwide RevPAR on a constant dollar basis will increase 1 to 2 percent worldwide and in North America.

 

The company assumes first quarter 2020 gross fee revenues will total $940 million to $950 million, a 5 to 6 percent increase over first quarter 2019 gross fee revenues of $895 million. The company anticipates first quarter 2020 incentive management fees will decrease slightly compared to first quarter 2019 incentive management fees of $163 million.

 

The company assumes first quarter 2020 general, administrative, and other expenses could total $230 million to $234 million.

 

Marriott assumes first quarter 2020 adjusted EBITDA could total $853 million to $867 million, a 4 to 6 percent increase over first quarter 2019 adjusted EBITDA of $821 million. See page A-12 for the adjusted EBITDA calculation.

 

For the full year 2020, Marriott assumes comparable systemwide RevPAR growth on a constant dollar basis will be flat to up 2 percent worldwide, with RevPAR growth in North America around the middle of that range.

 

Marriott assumes global room growth of 5.0 to 5.25 percent, net of 1 to 1.5 percent deletions for full year 2020.

 

The company assumes full year 2020 gross fee revenues will total $3,960 million to $4,040 million, a 4 to 6 percent increase over 2019 gross fee revenues of $3,823 million, including roughly $10 million of unfavorable foreign exchange. Full year 2020 estimated gross fee revenues include $630 million to $640 million of other franchise fees, a roughly 10 percent increase over other franchise fees for full year 2019. Other franchise fees include application fees, relicensing fees, timeshare licensing fees, credit card branding fees, and residential and other branding fees.

 

Marriott anticipates full year 2020 owned, leased, and other revenue, net of direct expenses, could total $295 million to $305 million.

 

The company assumes full year 2020 general, administrative, and other expenses could total $950 million to $960 million, a 1 to 2 percent increase from full year 2019 expenses of $938 million.

 

The company anticipates full year 2020 diluted EPS could total $6.30 to $6.53. Full year 2019 adjusted diluted EPS totaled $6.00. Full year adjusted 2019 results include the benefit of $143 million pre-tax ($0.33 per share) of asset sale gains in gains and other income, net, partially offset by asset impairments of $114 million pre-tax ($0.25 per share) in depreciation, amortization, and other expenses. See page A-3 for the 2019 adjusted diluted EPS calculation.

 

Marriott assumes full year 2020 adjusted EBITDA could total $3,700 million to $3,800 million, a 3 to 6 percent increase over 2019 adjusted EBITDA of $3,575 million. See page A-13 for the adjusted EBITDA calculation.

 

First Quarter 20201 Full Year 20201
Gross fee revenues $940 million to $950 million $3,960 million to $4,040 million
Contract investment amortization Approx. $18 million Approx. $75 million
Owned, leased and other revenue, net of direct expenses Approx. $50 million $295 million to $305 million
Depreciation, amortization, and other expenses Approx. $53 million Approx. $225 million
General, administrative, and other expenses $230 million to $234 million $950 million to $960 million
Operating income $685 million to $699 million $2,995 million to $3,095 million
Gains and other income Approx. $2 million Approx. $10 million
Net interest expense Approx. $85 million Approx. $360 million
Equity in earnings (losses) Approx. $5 million Approx. $15 million
Earnings per share – diluted $1.47 to $1.50 $6.30 to $6.53
Effective tax rate 20.8 percent 23.3 percent

1The base case outlook provided in this table does not reflect any impact from the Coronavirus outbreak, merger-related costs and charges, cost reimbursement revenue, or reimbursed expenses, each of which the company cannot forecast with sufficient accuracy, and which may be significant. It also does not reflect any additional asset sales that may occur during the year.

The company assumes investment spending in 2020 will total approximately $700 million to $800 million, including approximately $200 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 nearly 40 percent of its 2020 investment spending will be reimbursed or recycled over time.

In the first quarter, the company sold a hotel in North America for $268 million subject to a long-term management agreement. Assuming the level of investment spending noted above, no additional asset sales, and no impact from the Coronavirus, cash returned to shareholders through share repurchases and dividends could total more than $2.4 billion for full year 2020.

Marriott International, Inc. will conduct its quarterly earnings review for the investment community and news media on Thursday, February 27, 2020 at 10:00 a.m. Eastern Time (ET). The conference call will be webcast simultaneously via Marriott’s investor relations website click on “Events & Presentations” and click on the quarterly conference call link. A replay will be available at that same website until February 27, 2021.

 

 

Source:- Marriott


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