Company Performance 05/08/2018 – Bethesda, MD

Marriott International Reports First Quarter 2018 Results

HIGHLIGHTS

 

  • First quarter reported diluted EPS totaled $1.09, a 15 percent increase from prior year results. First quarter adjusted diluted EPS totaled $1.34, a 40 percent increase over first quarter 2017 adjusted results.  Adjusted results exclude merger-related adjustments, cost reimbursement revenue and reimbursed expenses.  Adjusted results for the first quarter of 2018 also exclude adjustments to the provision for income taxes and the Avendra gain;
  • First quarter 2018 comparable systemwide constant dollar RevPAR rose 3.6 percent worldwide, 7.5 percent outside North America and 2.0 percent in North America;
  • The company added nearly 15,000 rooms during the first quarter, including roughly 1,600 rooms converted from competitor brands and approximately 5,800 rooms in international markets;
  • At quarter-end, Marriott’s worldwide development pipeline increased to more than 2,700 hotels and nearly 465,000 rooms, including roughly 34,000 rooms approved, but not yet subject to signed contracts;
  • First quarter reported net income totaled $398 million, a 7 percent increase from prior year results. First quarter adjusted net income totaled $487 million, a 30 percent increase over prior year adjusted results;
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $770 million in the quarter, an 8 percent increase over first quarter 2017 adjusted EBITDA;
  • Marriott repurchased 5.6 million shares of the company’s common stock for $782 million during the first quarter. Year-to-date through May 8, the company has repurchased 7.9 million shares for $1.1 billion.

BETHESDA, MD – May 8, 2018 – Marriott International, Inc. (NASDAQ: MAR) today reported first quarter 2018 results.

Arne M. Sorenson, president and chief executive officer of Marriott International, said,

“Worldwide constant dollar RevPAR increased 3.6 percent, exceeding the high end of our expectations for the first quarter and reflecting solid economic growth around the world.  Given improving demand fundamentals, we have increased our expectations for full year 2018 worldwide constant dollar RevPAR growth to 3 to 4 percent, a 1.5 percentage point increase over the mid-point of our prior guidance.

“Our development pipeline reached a new record of nearly 465,000 rooms and we remain on track to achieve worldwide room additions of 5.5 to 6 percent, net of deletions, for full year 2018.  In the first quarter, we signed contracts for nearly 20,000 rooms, with nearly half of those rooms in the luxury and upper upscale tiers.  In fact, according to STR, the number of luxury and upper-upscale rooms in our pipeline at the end of the first quarter exceeded that of our next three global competitors combined.

“The integration of Starwood is going well.  Last month, we announced that our loyalty programs will be unified in August 2018, with all of our properties appearing on both Marriott and Starwood websites and apps at that time.  Our members are excited about the enhanced benefits that will be offered under the unified loyalty programs.

“We remain focused on delivering outstanding profit growth, while maximizing shareholder returns.  Year-to-date through May 8, we have already returned $1.2 billion to shareholders through dividends and share repurchases and believe we could return at least $3.0 billion in 2018.”

First 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 reported net income totaled $398 million in the 2018 first quarter, a 7 percent increase from 2017 first quarter net income of $371 million.  Reported diluted earnings per share (EPS) was $1.09 in the quarter, a 15 percent increase from diluted EPS of $0.95 in the year-ago quarter.

First quarter 2018 adjusted net income totaled $487 million, a 30 percent increase over 2017 first quarter adjusted net income of $375 million.  Adjusted net income excludes merger-related adjustments, cost reimbursement revenue, and reimbursed expenses.  Adjusted net income for the first quarter of 2018 also excludes a net tax charge resulting from the U.S. Tax Cuts and Jobs Act of 2017 (Tax Act), which the company first recorded in the fourth quarter of 2017, and an increase to the gain on the sale of Avendra, which the company also recognized in the fourth quarter of 2017.  Adjusted diluted EPS in the first quarter totaled $1.34, a 40 percent increase from adjusted diluted EPS of $0.96 in the year-ago quarter.  See page A-2 for the calculation of adjusted results.

Base management and franchise fees totaled $690 million in the 2018 first quarter, an 11 percent increase over base management and franchise fees of $619 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.

First quarter 2018 worldwide incentive management fees increased to $155 million, an 11 percent increase compared to incentive management fees of $140 million in the year-ago quarter.  The year-over-year increase was largely due to unit growth, higher net house profit at properties in the Asia Pacific region and favorable foreign exchange impact.

Contract investment amortization totaled $18 million in the 2018 first quarter, compared to $11 million in the year-ago quarter.  The year-over-year increase largely reflects contract write-offs related to two terminated contracts.

Owned, leased, and other revenue, net of direct expenses, totaled $70 million in the 2018 first quarter, compared to $72 million in the year-ago quarter.  The year-over-year decrease largely reflects the negative impact from hotels sold during or after the first quarter of 2017, including in the first quarter of 2018, partially offset by higher termination fees.

General, administrative, and other expenses for the 2018 first quarter totaled $247 million, compared to $212 million in the year-ago quarter.  The year-over-year $35 million increase reflects the company’s incremental retirement contribution of up to $1,000 for each eligible participating associate in the U.S.

Gains and other income, net, totaled $59 million in the 2018 first quarter, largely reflecting the $53 million gain associated with the sale of two hotels in Buenos Aires.

Interest expense, net, totaled $70 million in the first quarter compared to $63 million in the year-ago quarter.  The increase was largely due to higher interest rates and debt balances, partially offset by the maturity of Series I Senior Notes.

The provision for income taxes totaled $104 million in the first quarter, a 20.7 percent effective tax rate, compared to $123 million in the year-ago quarter, a 24.9 percent effective tax rate.

For the first quarter, adjusted EBITDA totaled $770 million, an 8 percent increase over first quarter 2017 adjusted EBITDA of $716 million.  Compared to the prior year, adjusted EBITDA for the first quarter of 2018 reflects a $20 million negative impact from sold hotels.  See page A-8 for the adjusted EBITDA calculations.

Selected Performance Information

The company added 100 new properties (14,905 rooms) to its worldwide lodging portfolio during the 2018 first quarter, including the Marriott Hotel Mena House in Cairo, the Moxy Tbilisi, and the Renaissance Bali Uluwatu Resort & Spa.  Twenty-nine properties (6,351 rooms) exited the system during the quarter.  At quarter-end, Marriott’s lodging system encompassed 6,591 properties and timeshare resorts with more than 1,266,000 rooms.

At quarter-end, the company’s worldwide development pipeline totaled 2,722 properties with nearly 465,000 rooms, including 1,148 properties with approximately 209,000 rooms under construction and 174 properties with roughly 34,000 rooms approved for development, but not yet subject to signed contracts.

In the 2018 first quarter, worldwide comparable systemwide constant dollar RevPAR increased 3.6 percent (a 5.5 percent increase using actual dollars).  North American comparable systemwide constant dollar RevPAR increased 2.0 percent (a 2.3 percent increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 7.5 percent (a 14.1 percent increase using actual dollars) for the same period.

Worldwide comparable company-operated house profit margins increased 70 basis points in the first quarter, largely due to higher RevPAR, solid cost controls and synergies from the Starwood acquisition.  House profit margins for comparable company-operated properties outside North America rose 160 basis points, while North American comparable company-operated house profit margins declined 10 basis points in the first quarter.

Balance Sheet

At quarter-end, Marriott’s total debt was $8,846 million and cash balances totaled $701 million, compared to $8,238 million in debt and $383 million of cash at year-end 2017.

In April 2018, the company issued $450 million of Series X Senior Notes due in 2028 with a 4.0 percent interest rate coupon. The company expects to use the net proceeds for general corporate purposes.

Marriott Common Stock

Weighted average fully diluted shares outstanding used to calculate both reported and adjusted diluted EPS totaled 363.3 million in the 2018 first quarter, compared to 390.0 million shares in the year-ago quarter.

The company repurchased 5.6 million shares of common stock in the 2018 first quarter for $782 million at an average price of $139.20 per share.  Year-to-date through May 8, the company has repurchased 7.9 million shares for $1.1 billion at an average price of $137.95 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 will not be 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 anticipates providing 2017 quarterly and full year retrospective consolidated statements of income on a Form 8-K, which the company expects to file with the SEC in the second quarter of 2018.

OUTLOOK

The following outlook for second 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 excludes the net tax charge and the increase in the Avendra gain, which were reported in the 2018 first quarter.

To assist investors in evaluating the revenue and adjusted EBITDA guidance for second quarter and full year 2018 in this section, the following table shows estimates for the components of, and total, gross fee revenues and adjusted EBITDA for second quarter and full year 2017 recast to reflect the full retrospective application of the new revenue standard, as if adopted as of January 1, 2016.

Second Quarter 2017

 

Full Year 2017

 

Base management fees $285 million $1,102 million
Franchise fees $408 million $1,586 million
Incentive management fees $155 million $607 million
Gross Fee Revenues $848 million $3,295 million
Adjusted EBITDA $820 million $3,131 million

 

For the 2018 second quarter, Marriott expects comparable systemwide RevPAR on a constant dollar basis in North America will increase 3 to 4 percent.  The company’s guidance for second quarter RevPAR growth in North America reflects the favorable shift of the Easter holiday.  The company expects second quarter comparable systemwide RevPAR on a constant dollar basis will increase 5 to 6 percent outside North America and 3 to 4 percent worldwide.

The company assumes second quarter 2018 gross fee revenues will total $935 million to $945 million, a 10 to 11 percent increase over second quarter 2017 gross fee revenues of $848 million.

Marriott expects second quarter 2018 owned, leased, and other revenue, net of direct expenses, could total approximately $80 million.  Compared to the year-ago quarter, this estimate reflects the $14 million negative impact from hotels sold during or after the first quarter of 2017, including in the first quarter of 2018, but does not reflect additional asset sales that may occur in the quarter.

The company assumes second quarter 2018 general, administrative, and other expenses could total approximately $250 million.  This estimate assumes a $25 million expense for the company’s incremental retirement contribution of up to $1,000 for each eligible participating associate in the U.S.

Marriott expects second quarter 2018 adjusted EBITDA could total $880 million to $890 million, a 7 to 9 percent increase over second quarter 2017 adjusted EBITDA of $820 million.  This estimate reflects the roughly $11 million negative impact of hotels sold in 2017 and to date in 2018, but does not reflect additional asset sales that may occur in the second quarter of 2018.  See page A-9 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 room additions, net of deletions, of 5.5 to 6 percent for full year 2018.

The company assumes full year 2018 gross fee revenues will total $3,650 million to $3,690 million, an 11 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 February 14, this estimate of gross fee revenues reflects stronger expected RevPAR growth, particularly in the Asia Pacific region, as well as additional favorable foreign exchange impact.  The company anticipates full year 2018 incentive management fees will increase roughly 10 percent over 2017 full year incentive fees of $607 million.

Marriott expects full year 2018 owned, leased, and other revenue, net of direct expenses, could total approximately $300 million.  Compared to 2017 results previously reported, this estimate reflects the $55 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.  Compared to the owned, leased, and other revenue, net of direct expenses, estimate the company provided on February 14, this estimate reflects the higher than expected termination fees in the first quarter.

The company assumes full year 2018 general, administrative, and other expenses could total $940 million to $950 million.  This estimate assumes a $70 million expense for the company’s incremental retirement contribution of up to $1,000 for each eligible participating associate in the U.S.  This expense will not recur in 2019.  Compared to the estimate the company provided on February 14, this general, administrative, and other expenses estimate reflects additional unfavorable foreign exchange impact.

Marriott expects full year 2018 gains and other income could total $65 million to $70 million.  Compared to the estimate the company provided on February 14, this estimate largely reflects a higher than expected gain on the sale of the two hotels in Buenos Aires and a gain from the sale of an interest in a joint venture.

Marriott expects full year 2018 adjusted EBITDA could total $3,445 million to $3,500 million, a 10 to 12 percent increase over 2017 adjusted EBITDA of $3,131 million.  This estimate reflects the roughly $45 million negative impact of hotels sold in 2017 and to date in 2018, but does not reflect additional asset sales that may occur in 2018.  See page A-10 for the adjusted EBITDA calculation.

Second Quarter 2018 1 Full Year 2018 1
Gross fee revenues $935 million to $945 million $3,650 million to $3,690 million
Contract investment amortization Approx. $15 million Approx. $60 million
Owned, leased, and other          revenue, net of direct expenses Approx. $80 million Approx. $300 million
Depreciation, amortization, and other expenses Approx. $55 million Approx. $225 million
General, administrative, and other expenses Approx. $250 million $940 million to $950 million
Operating income $695 million to $705 million $2,715 million to $2,765 million
Gains and other income Approx. $10 million $65 million to $70 million
Net interest expense Approx. $80 million Approx. $305 million
Equity in earnings (losses) Approx. $10 million Approx. $40 million
Earnings per share2 $1.34 to $1.36 $5.43 to $5.55
Tax rate2 23 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 2018 first quarter.

2Guidance for Full Year 2018 reflects the impact of employee stock-based compensation excess tax benefits.  2018 estimated EPS assumes a $0.12 favorable impact and the company’s tax rate assumes a $41 million favorable impact from these benefits.

The company expects investment spending in 2018 will total approximately $600 million to $700 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.  Assuming this level of investment spending and no additional asset sales, at least $3.0 billion could be returned to shareholders through share repurchases and dividends in 2018.

Marriott International, Inc. (NASDAQ: MAR) will conduct its quarterly earnings review for the investment community and news media on Wednesday, May 9, 2018 at 10:00 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 on “Events & Presentations” and click on the quarterly conference call link.  Slides that will be discussed on the call will be available in pdf format on the Events & Presentations page.  A replay will be available at that same website until May 9, 2019.

The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 1786718.  A telephone replay of the conference call will be available from 1:00 p.m. ET, Wednesday, May 9, 2018 until 8:00 p.m. ET, Wednesday, May 16, 2018.  To access the replay, call 404-537-3406.  The conference ID for the recording is 1786718.

Note on forward-looking statements:  This press release and accompanying schedules contain “forward-looking statements” within the meaning of federal securities laws, including our RevPAR, profit margin and earnings outlook and assumptions; the number of lodging properties we expect to add to or remove from our system in the future; the timeline for the unification and combination of our loyalty programs; our expectations regarding the estimates of the impact of new accounting standards and the new tax law; our expectations about investment spending and tax rate; 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; the extent to which we can continue to successfully integrate Starwood and realize the anticipated benefits of combining Starwood and Marriott; changes to our provisional estimates of the impact of the U.S. Tax Cuts and Jobs Acts of 2017; and changes to our estimates of the impact of the new revenue recognition accounting standard.  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 May 8, 2018.  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 6,500 properties in 127 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.

                                                                                       IRPR#1

Click here to download MAR Q1 2018 Press Release Schedules – FINAL or visit http://marriott.com/investor

Contact:
Felicia Farrar McLemore
(301) 380-2702
felicia.mclemore@marriott.com