Company Performance 02/15/2017 – Bethesda, Md.

Marriott International Reports Fourth Quarter 2016 Results

HIGHLIGHTS  

  • Fourth quarter reported diluted EPS totaled $0.62, a 19 percent decrease over prior year results. Fourth quarter adjusted diluted EPS totaled $0.85, a 20 percent increase over fourth quarter 2015 combined results. Adjusted 2016 fourth quarter results exclude merger-related costs. Combined 2015 fourth quarter results assume Marriott’s acquisition of Starwood and Starwood’s sale of its timeshare business had been completed on January 1, 2015;  
  • North American comparable systemwide constant dollar RevPAR rose 1.1 percent in the 2016 fourth quarter, while worldwide comparable systemwide constant dollar RevPAR rose 0.8 percent;  
  • During the twelve months ended December 31, 2016, Marriott and Starwood together added more than 68,000 rooms, including roughly 11,000 rooms converted from competitor brands and approximately 31,000 rooms in international markets;  
  • At year-end, Marriott’s worldwide development pipeline increased to more than 420,000 rooms, including nearly 34,000 rooms approved, but not yet subject to signed contracts;  
  • Fourth quarter reported net income totaled $244 million, a 21 percent increase over prior year results. Fourth quarter adjusted net income totaled $334 million, a 15 percent increase over prior year combined results;
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $756 million in the quarter, an 11 percent increase over fourth quarter 2015 combined adjusted EBITDA;

  • For full year 2016, Marriott repurchased 8.0 million shares of the company’s common stock for $573 million, including 4.3 million shares for $348 million in the fourth quarter.   

BETHESDA, MD – February 15, 2017 – Marriott International, Inc. (NASDAQ: MAR) today reported fourth quarter 2016 results.

On September 23, 2016, Marriott completed its acquisition of Starwood Hotels & Resorts Worldwide (Starwood). The discussion in the first section below reflects reported results for the fourth quarter in accordance with US generally accepted accounting principles (GAAP).  To further assist investors, the company is also providing (a) adjusted results that exclude merger-related costs; and (b) combined financials and selected performance information for full year 2016, the 2015 fourth quarter and full year 2015, that assume Marriott’s acquisition of Starwood and Starwood’s sale of its timeshare business had been completed on January 1, 2015, but use the estimated fair value of assets and liabilities as of the actual closing date of the acquisition.  Combined results also reflect other adjustments as described below.  Throughout this press release, the business associated with brands that were in Marriott’s portfolio before the Starwood acquisition are referred to as “Legacy-Marriott”, while the Starwood business and brands that the company acquired are referred to as “Legacy-Starwood.”

Arne M. Sorenson, president and chief executive officer of Marriott International, said, “The company delivered record high fee revenues in 2016, boosted by significant unit growth, RevPAR improvement, outstanding property-level margin gains and the acquisition of Starwood Hotels & Resorts. We added 11 leading brands to our portfolio as a result of the acquisition and welcomed the 6,000th hotel to our system.  Together with owners and franchisees, Marriott and Starwood added more than 68,000 rooms during the year and, despite a tightening credit market, drove our pipeline of hotels under development to more than 420,000 rooms.

“Looking ahead, we’ve never been more optimistic about our long-term prospects. Our expected new rooms growth for 2017 remains healthy, customers love our hotels and loyalty programs, and owners and franchisees prefer our portfolio of brands more than ever.  Around the globe, Marriott brands represent nearly one in four hotels under construction, and one in three hotels under construction in North America.

“Our strategy of managing and franchising hotels under solid, long-term agreements is proven. Over the years, we’ve shown that this business model delivers meaningful growth in the number and variety of choices for our guests globally, while generating strong sustainable cash flow.

“In 2017, we anticipate growing our rooms distribution by 6 percent, net, and expect that our worldwide systemwide comparable constant dollar RevPAR for the combined portfolio will increase 1/2 to 2 1/2 percent. While we do not assume asset sales in our earnings guidance, we believe assets will be sold in 2017.  Not including asset sales, we expect to return $1.5 billion to $2.0 billion to shareholders in share repurchases and dividends in 2017.”

Marriott International GAAP – Financial Results As Reported
Marriott reported net income totaled $244 million in the fourth quarter, a 21 percent increase over 2015 fourth quarter net income of $202 million. Reported diluted earnings per share (EPS) was $0.62 in the quarter, a 19 percent decrease from diluted EPS of $0.77 in the year-ago quarter.

Base management and franchise fees totaled $564 million in the 2016 fourth quarter, compared to $373 million in the year-ago quarter. Of the $191 million year-over-year increase in fees, $174 million relates to Legacy-Starwood results in the quarter.

Fourth quarter worldwide incentive management fees increased to $149 million compared to $81 million in the year-ago quarter. The $68 million increase largely reflects Legacy-Starwood fees in the quarter.

Owned, leased, and other revenue, net of direct expenses, totaled $169 million in the 2016 fourth quarter, compared to $76 million in the year-ago quarter.  The $93 million year-over-year increase includes $77 million of Legacy-Starwood results in the quarter.

Depreciation, amortization, and other expenses totaled $71 million in the fourth quarter compared to $32 million in the year-ago quarter. The year-over-year increase largely reflects $39 million of Legacy-Starwood results in the quarter, including the effect of purchase accounting.

Merger-related costs and charges totaled $136 million in the fourth quarter compared to none in the year-ago quarter. Included in the merger-related costs and charges are $55 million of severance and retention costs, $59 million of integration costs and $22 million of transaction costs.

General, administrative, and other expenses for the 2016 fourth quarter totaled $234 million compared to $188 million in the year-ago quarter.

Interest expense, net totaled $62 million in the fourth quarter compared to $36 million in the year-ago quarter.

Equity in earnings totaled $2 million in the fourth quarter compared to equity in earnings of $3 million in the year-ago quarter.

The provision for income taxes totaled $139 million in the fourth quarter, a 36.3 percent effective tax rate, compared to $82 million in the year-ago quarter.

Full year 2016 reported net income totaled $780 million, a 9 percent decrease from reported 2015 net income of $859 million.

Fourth Quarter 2016 Financial Results As Adjusted Compared to Fourth Quarter 2015 Combined Financial Results
This information is being presented to allow shareholders to more easily compare the 2016 fourth quarter adjusted results with the combined results for the fourth quarter of 2015. The combined results assume Marriott’s acquisition of Starwood and Starwood’s sale of its timeshare business had been completed on January 1, 2015, but use the estimated fair value of assets and liabilities as of the actual closing date of the acquisition.

Combined results discussed in this section make the following assumptions: (1) removes merger-related costs and charges; (2) removes a loss on cumulative translation adjustment related to Starwood’s disposition of a hotel property in the 2016 second quarter; (3) adjusts income taxes to reflect the Company’s combined 2016 effective tax rate of 32.5 percent; (4) adjusts weighted average shares outstanding to include shares issued to Starwood shareholders; and (5) adjusts debt to reflect borrowing on the Credit Facility and issuance of Series Q and R Notes on January 1, 2015. Adjusted results for the 2016 fourth quarter exclude merger-related costs and charges.  See page A-3 for the calculation of adjusted results, as well as combined results for the year-ago quarter.

Fourth quarter 2016 adjusted net income totaled $334 million, a 15 percent increase over 2015 fourth quarter combined net income of $291 million. Adjusted net income for the fourth quarter of 2016 excludes $136 million ($90 million after-tax) of merger-related costs.  Adjusted diluted EPS in the fourth quarter totaled $0.85, a 20 percent increase from combined diluted EPS of $0.71 in the year-ago quarter.

Base management and franchise fees totaled $564 million in the fourth quarter of 2016, a 5 percent increase over combined base management and franchise fees of $538 million in the year-ago quarter. The year-over-year increase largely reflects higher RevPAR and unit growth, partially offset by $3 million of unfavorable foreign exchange.

Fourth quarter incentive management fees decreased to $149 million, compared to combined fees of $150 million in the 2015 fourth quarter. Despite a 70 basis point decrease in worldwide comparable company-operated actual dollar RevPAR in the quarter, incentive fees were roughly flat due to higher property-level margins.

On November 7, the company estimated total fee revenue for the fourth quarter would be $695 million to $705 million. Actual total fee revenue of $713 million in the quarter was higher than estimated, reflecting RevPAR near the high end of the guidance range, as well as better than expected incentive fees.

Owned, leased, and other revenue, net of direct expenses, totaled $169 million, compared to combined revenue, net of expenses of $165 million in the year-ago quarter.  The adjusted year-over-year increase largely reflects better results at owned and leased hotels, higher residential and credit card branding fees, partially offset by lower termination fees and the impact of Legacy-Starwood hotels previously sold.

On November 7, the company estimated owned, leased, and other revenue, net of direct expenses, for the fourth quarter would total $150 million to $155 million. Actual results of $169 million in the quarter were higher than estimated largely due to better than expected results at several owned and leased hotels, as well as higher than expected residential and credit card branding fees.

Depreciation, amortization, and other expenses for the 2016 fourth quarter totaled $71 million compared to combined expenses of $81 million in the year-ago quarter. The $10 million decrease year-over-year was largely due to Legacy-Starwood hotels previously sold, as well as properties moved to assets held for sale in the 2016 third quarter.

General, administrative, and other expenses for the 2016 fourth quarter totaled $234 million compared to combined expenses of $284 million in the year-ago quarter. The decrease in expenses year-over-year was largely due to general administrative cost savings, an $8 million favorable legal settlement and $4 million of net foreign exchange gains.  On November 7, Marriott estimated general, administrative, and other expenses for the fourth quarter would total approximately $235 million to $240 million.

Interest expense, net totaled $62 million in the fourth quarter compared to combined net expense of $69 million in the year-ago quarter. The decrease was largely due to the maturity of Series G and H Senior Notes.  

Equity in earnings totaled $2 million in the fourth quarter compared to combined equity in earnings of $13 million in the year-ago quarter. The 2015 fourth quarter benefited from the reversal of an $11 million litigation reserve.  

The adjusted provision for income taxes totaled $185 million in the fourth quarter, a 35.6 percent effective rate, compared to the combined provision for taxes of $139 million in the 2015 fourth quarter. On November 7, Marriott estimated an effective tax rate of 32.5 percent for the quarter. The tax rate was higher than expected largely due to a tax rate change in France and a higher mix of earnings in higher tax rate jurisdictions.

For the fourth quarter, adjusted EBITDA totaled $756 million, an 11 percent increase over fourth quarter 2015 combined adjusted EBITDA of $682 million. Full year 2016 combined adjusted EBITDA totaled $2,987 million, a 9 percent increase over full year 2015 combined adjusted EBITDA of $2,743 million.  See page A-12 for the adjusted EBITDA calculation.  

Selected Performance Information

Combined information presented in this section assumes Marriott’s acquisition of Starwood and Starwood’s sale of its timeshare business had been completed on January 1, 2015.

The company added 116 new properties (22,043 rooms) to its worldwide lodging portfolio during the 2016 fourth quarter, including W Las Vegas, The Sanya EDITION and the JW Marriott Hotel Singapore South Beach. Ten properties (2,450 rooms) exited the system during the quarter.  At year-end, Marriott’s lodging system encompassed 6,080 properties and timeshare resorts with nearly 1,191,000 rooms.

At year-end, the company’s worldwide development pipeline totaled 2,493 properties with more than 420,000 rooms, including 892 properties with roughly 161,000 rooms under construction and 218 properties with nearly 34,000 rooms approved for development, but not yet subject to signed contracts.

In the 2016 fourth quarter, worldwide comparable systemwide constant dollar RevPAR increased 0.8 percent (a 0.3 percent increase using actual dollars). North American comparable systemwide constant dollar RevPAR increased 1.1 percent (a 1.1 percent increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 0.2 percent (a 1.4 percent decline using actual dollars) for the same period.  These RevPAR growth statistics compare the fourth quarter of 2016 to combined comparable systemwide RevPAR for the fourth quarter of 2015.  

For full year 2016, worldwide comparable combined systemwide constant dollar RevPAR increased 1.8 percent (a 1.0 percent increase using actual dollars). North American comparable combined systemwide constant dollar RevPAR increased 2.3 percent (a 2.2 percent increase using actual dollars), and international comparable combined systemwide constant dollar RevPAR increased 0.7 percent (a 2.1 percent decline using actual dollars) for the same period.

Worldwide comparable company-operated house profit margins increased 30 basis points in the fourth quarter due to improved productivity and lower utility costs. House profit margins for comparable company-operated properties outside North America were flat, while North American comparable company-operated house profit margins increased 50 basis points in the fourth quarter.  These house profit margin statistics compare the fourth quarter of 2016 to combined comparable company-operated house profit margins for the fourth quarter of 2015.

For the full year 2016, worldwide comparable company-operated combined house profit margins increased 50 basis points due to improved productivity and lower utility costs. Full year combined house profit margins for comparable company-operated properties outside North America increased 20 basis points, while North America comparable company-operated combined house profit margins increased 70 basis points from the prior year.   

Balance Sheet
At year-end, Marriott’s total debt was $8,506 million and cash balances totaled $858 million, compared to $4,107 million in debt and $96 million of cash at year-end 2015.

Marriott Common Stock
Weighted average fully diluted shares outstanding used to calculate reported diluted EPS totaled 394.0 million in the 2016 fourth quarter. Weighted average fully diluted shares outstanding used to calculate combined diluted EPS totaled 409.5 million in the year-ago quarter.

The company repurchased 4.3 million shares of common stock in the fourth quarter at a cost of $348 million at an average price of $80.11. For full year 2016, Marriott repurchased 8.0 million shares of its stock for $573 million at an average price of $71.55.  To date in 2017, the company has repurchased 3.0 million shares for $253 million at an average price of $84.24.

OUTLOOK
The following outlook for the first quarter and full year 2017 does not include merger-related costs, which the company cannot accurately forecast, but expects will be significant on a full-year basis.

Beginning in the first quarter of 2017, branding fees from credit cards and residential sales will be reported in the Franchise fees line on the income statement. Those fees were previously reported in Owned, leased and other revenue.   In 2016, combined fees from credit cards and residential sales totaled $52 million in the first quarter and $210 million for the full year.  Application fees, relicensing fees and timeshare royalties will continue to be included in the Franchise fees line.  Comparisons to prior year combined results throughout this Outlook section reflects this change in reporting.  The company is issuing further schedules setting forth combined quarterly and full year combined financial information for both 2015 and 2016 that reflect this change in presentation.  Those schedules will be included in a Form

8-K being filed today and will be available on Marriott’s Investor Relations website at http://www.marriott.com/investor once this release has been posted.

In the 2017 first quarter, the company plans to adopt Accounting Standard Update 2016-09 (“ASU 2016-09”), which changes the GAAP reporting of excess tax benefits associated with employee stock-based compensation. For modeling purposes, the company estimates there could be a $41 million tax benefit ($0.10 diluted earnings per share) in 2017.  The benefit should be recognized in the 2017 first quarter when most shares vest.

For the 2017 first quarter, Marriott expects comparable systemwide RevPAR on a constant dollar basis for the combined company will increase 1 to 3 percent in North America and worldwide. Outside North America, the company expects comparable systemwide RevPAR on a constant dollar basis for the combined company will increase 1 to 2 percent.  The company’s RevPAR guidance for the first quarter reflects the benefit of the U.S. Presidential inauguration and related events at Washington, D. C. hotels and the favorable shift of Easter into the second quarter.

The company assumes first quarter total fee revenue will total $740 million to $750 million, flat to up 1 percent compared to combined first quarter 2016 total fee revenue of $740 million. These fee revenue estimates reflect about $6 million of unfavorable foreign exchange and roughly $7 million of negative impact year-over-year of the leap day in 2016 on base management and franchise fees.  The company estimates that incentive management fees will decrease roughly 10 percent year-over-year largely due to deferred fees recognized in the prior year, renovations and timing.  Combined fee revenues from credit cards, residential sales, timeshare royalties, application fees and relicensing fees totaled approximately $88 million in the 2016 first quarter and should be flat year-over-year.

Marriott expects first quarter 2017 owned, leased, and other revenue, net of direct expenses, could total $60 million to $70 million, a 19 to 30 percent decrease compared to combined first quarter 2016 results of $86 million. The company estimates that Legacy-Starwood hotels previously sold will negatively impact revenue, net of direct expenses by roughly $4 million in the first quarter of 2017.  The first quarter estimate also assumes $13 million of lower termination fees.

The company expects general, administrative, and other expenses will total $225 million to $230 million in the 2017 first quarter, a 7 to 9 percent decline compared to combined 2016 first quarter expenses of $246 million.

For the full year 2017, Marriott expects comparable systemwide RevPAR on a constant dollar basis for the combined company will be flat to up 2 percent in North America. The company expects comparable systemwide RevPAR on a constant dollar basis for the combined company will increase 1 to 3 percent outside North America and 0.5 to 2.5 percent worldwide.

For the combined company, Marriott anticipates gross room additions of 6 percent, net, for full year 2017.

The company assumes full year 2017 total fee revenue will total $3,175 million to $3,245 million, growth of 3 to 6 percent over combined 2016 total fee revenue of $3,072 million. These fee revenue estimates reflect $20 million to $25 million of unfavorable foreign exchange and roughly $7 million of negative impact year-over-year of the leap day in 2016 on base management and franchise fees.  For the full year, the company expects that incentive management fees will be roughly flat compared to the prior year combined total of $562 million, reflecting RevPAR improvement and unit growth offset by renovations, terminations and about $15 million of unfavorable foreign exchange.  Combined fee revenues from credit cards, residential sales, timeshare royalties, application fees and relicensing fees totaled approximately $350 million in 2016 and is expected to increase to approximately $400 million in 2017.

Marriott expects full year 2017 owned, leased, and other revenue, net of direct expenses, could total $345 million to $360 million, a 16 to 19 percent decrease compared to combined 2016 results of $426 million. The company estimates that Legacy-Starwood hotels previously sold and lower termination fees should reduce results by roughly $38 million year-over-year.  The tough comparison to the Olympics in the prior year and lower results at hotels in New York should negatively impact revenue, net of direct expenses, by approximately $20 million for the full year.

For 2017, the company anticipates general, administrative, and other expenses will total $895 million to $905 million. With the uncertainty around the timing of the closing of the Starwood acquisition, the combined company had a significant number of open positions in 2016.  As a result, the company is using a baseline of $1,080 million (equal to combined 2015 general, administrative, and other expenses increased by 4 percent) for purposes of evaluating general, administrative, and other expense synergies from the Starwood acquisition.  Using that comparison, the company estimates $175 million to $185 million of synergies will be realized in 2017, increasing steadily throughout the year as integration progresses.  The company continues to believe it will achieve a run-rate of $250 million of annual cost synergies.

Marriott expects full year 2017 adjusted EBITDA could total $3,075 million to $3,175 million, a 3 to 6 percent increase compared to full year 2016 combined adjusted EBITDA of $2,987 million. See page A-13 for the adjusted EBITDA calculation.  Legacy-Starwood hotels previously sold contributed roughly $20 million of combined adjusted EBITDA in 2016.

 

First Quarter 2017 Full Year 2017
Total fee revenue1 $740 million to $750 million $3,175 million to $3,245 million
Owned, leased and other revenue, net of direct expenses1 $60 million to $70 million $345 million to $360 million
Depreciation, amortization, and other expenses Approx. $70 million Approx. $280 million
General, administrative, and other expenses $225 million to $230 million $895 million to $905 million
Operating income $500 million to $525 million $2,335 million to $2,430 million
Gains and other income Approx. $0 million Approx. $0 million
Net interest expense2 Approx. $65 million Approx. $260 million
Equity in earnings (losses) Approx. $10 million $35 million to $40 million
Earnings per share3 $0.87 to $0.91 $3.79 to $3.97
Tax rate4 23.8 percent 30.8 percent

       1Beginning in the first quarter of 2017, the company plans to report credit card and residential branding fees in Franchise fees revenue. Those fees have to date been reported in Owned, leased and other revenue.  Combined credit card and residential branding fees totaled $52 million in First Quarter 2016 and $210 million for Full Year 2016.

        2Net of interest income

        3Guidance for both First Quarter 2017 EPS and Full Year 2017 EPS includes the $0.10 expected favorable impact from the adoption of ASU 2016-09.

        4The tax rate guidance for both First Quarter 2017 and Full Year 2017 includes the $41 million expected benefit from the adoption of ASU 2016-09, but does not include the impact of merger-related costs that may be incurred. Without the expected benefit from adoption of ASU 2016-09, the anticipated tax rate for both First Quarter 2017 and Full Year 2017 would be 32.7 percent.

The company expects investment spending in 2017 will total approximately $500 million to $700 million, including approximately $175 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. Assuming this level of investment spending and no asset sales, $1.5 billion to $2.0 billion could be returned to shareholders through share repurchases and dividends in 2017.

The company plans to continue to disclose adjusted results and EBITDA that exclude merger-related costs and charges arising from the Starwood acquisition.

Marriott International, Inc. (NASDAQ: MAR) will conduct its quarterly earnings review for the investment community and news media on Thursday, February 16, 2017 at 10 a.m. Eastern Time (ET). The conference call will be webcast simultaneously via Marriott’s investor relations website at http://www.marriott.com/investor, click the “Recent and Upcoming Events” tab and click on the quarterly conference call link. A replay will be available at that same website until February 16, 2018.

The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 43530480. A telephone replay of the conference call will be available from 1 p.m. ET, Thursday, February 16, 2017 until 8 p.m. ET, Thursday, February 23, 2017.  To access the replay, call 404-537-3406.  The conference ID for the recording is 43530480.

Note on forward-looking statements: This press release and accompanying schedules contain “forward-looking statements” within the meaning of federal securities laws, including RevPAR, profit margin and earnings trends, estimates and assumptions; the number of lodging properties we expect to add to or remove from our system in the future; our expectations about investment spending; and similar statements concerning anticipated future events and expectations that are not historical facts.  We caution you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including those we identify below and other risk factors that we identify in our most recent quarterly report on Form 10-Q or annual report on Form 10-K.  Risks that could affect forward-looking statements in this press release include changes in market conditions; changes in global and regional economies; supply and demand changes for hotel rooms; competitive conditions in the lodging industry; relationships with clients and property owners; the availability of capital to finance hotel growth and refurbishment; and the extent to which we are able to successfully integrate Starwood, manage our expanded operations, and realize the anticipated benefits of combining Starwood and Marriott. Any of these factors could cause actual results to differ materially from the expectations we express or imply in this press release.  We make these forward-looking statements as of February 15, 2017.  We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Marriott International, Inc. (NASDAQ: MAR) is the world’s largest hotel company based in Bethesda, Maryland, USA, with more than 6,000 properties in 122 countries and territories. Marriott operates and franchises hotels and licenses vacation ownership resorts. The company’s 30 leading brands include: Bulgari®, The Ritz-Carlton® and The Ritz-Carlton Reserve®, St. Regis®, W®, EDITION®, JW Marriott®, The Luxury Collection®, Marriott Hotels®, Westin®, Le Méridien®, Renaissance® Hotels, Sheraton®, Delta Hotels by MarriottSM, Marriott Executive Apartments®, Marriott Vacation Club®, Autograph Collection® Hotels, Tribute Portfolio™, Design Hotels™, Gaylord Hotels®, Courtyard®, Four Points® by Sheraton, SpringHill Suites®, Fairfield Inn & Suites®, Residence Inn®, TownePlace Suites®, AC Hotels by Marriott®, Aloft®, Element®, Moxy® Hotels, and Protea Hotels by Marriott®. The company also operates award-winning loyalty programs: Marriott Rewards®, which includes The Ritz-Carlton Rewards®, and Starwood Preferred Guest®. For more information, please visit our website at www.marriott.com, and for the latest company news, visit www.marriottnewscenter.com and @MarriottIntl.

Click here to download MAR Q4 2016 Press Release Schedules – FINAL or visit http://www.marriott.com/investor.