Marriott International Reports Second Quarter Results
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Marriott International Reports Second Quarter Results
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Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2009-07-16
Marriott International, Inc. (“Marriott”) (NYSE:MAR) today reported second quarter 2009 adjusted income from continuing operations attributable to Marriott of $84 million, a 56 percent decline over the year-ago quarter, and adjusted diluted earnings per share (“EPS”) from continuing operations attributable to Marriott shareholders of $0.23, down 55 percent. The company’s EPS guidance for the 2009 second quarter, disclosed on April 23, 2009, totaled $0.20 to $0.23.
The reported income from continuing operations attributable to Marriott was $37 million in the second quarter of 2009 compared to reported income from continuing operations attributable to Marriott of $153 million in the year-ago quarter. Reported diluted EPS from continuing operations attributable to Marriott shareholders was $0.10 in the second quarter of 2009 compared to diluted EPS from continuing operations attributable to Marriott shareholders of $0.41 in the second quarter of 2008.
Adjusted results for the 2009 second quarter exclude $57 million pretax ($30 million after-tax and $0.08 per diluted share) of restructuring costs and other charges resulting from the continued soft lodging and timeshare demand environment.
Restructuring costs totaled $33 million pretax and primarily included severance costs and timeshare facilities exit costs. Other charges totaled $24 million pretax primarily reflecting revaluation of residual interests from prior timeshare note sales, reserves for loan losses and guarantees and other charges. Of the total restructuring costs and other charges, cash payments are expected to be $31 million. See the table on page A-13 of the accompanying schedules for the detail of these restructuring costs and other charges and their placement on the Consolidated Statements of Income.
A djusted results for the 2009 second quarter also exclude $17 million of non-cash charges ($0.05 per diluted share) in the provision for income taxes primarily related to the treatment of funds received from certain foreign subsidiaries that is in ongoing discussions with the Internal Revenue Service (“IRS”).
Adjusted results for the 2008 second quarter exclude the $36 million ($0.10 per diluted share) impact of non-cash items included in the tax provision. These prior year items included a $24 million tax reserve related to the treatment of funds received from certain foreign subsidiaries with the remaining $12 million expense due primarily to prior years’ tax adjustments, including a settlement with the IRS associated with a 1995 leasing transaction.
J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, said, “In the midst of a continued difficult environment for the travel and tourism industry, our company retains its focus on driving revenue, reducing costs and strengthening the balance sheet.
“In the second quarter, we delivered impressive house profit margins as a result of ongoing cost controls and operational improvements, despite a significant decline in revenue per available room. Our efficient delivery of high quality products and services continues to get solid reviews from owners and franchisees as we manage through the difficult economy. Our 110,000-room global hotel development pipeline demonstrates owners’ and franchisees’ ongoing confidence in our brands and management expertise.
“Across the enterprise our lodging brands continue to show significant REVPAR premiums as our teams launch quick-to-market and focused revenue generation initiatives. Our timeshare business rolled out a successful 25th Anniversary stimulus promotion in the second quarter, which significantly improved timeshare contract sales compared to first quarter levels, while significant cost reductions helped the bottom line. We expect timeshare to deliver positive cash flow in 2009.
“Most importantly, both customer and associate satisfaction levels remain high in both our lodging and timeshare businesses. As a result, we remain confident in the long term prospects for our company.”
In the 2009 second quarter (12-week period from March 28, 2009 to June 19, 2009), REVPAR for the company’s worldwide comparable company-operated properties declined 26.1 percent (23.0 percent using constant dollars) and REVPAR for the company’s worldwide comparable systemwide properties declined 23.6 percent (21.4 percent using constant dollars).
Markets outside North America were impacted by the difficult economic climate as well as concerns about the H1N1 flu. International comparable company-operated REVPAR declined 31.5 percent (22.1 percent using constant dollars), including a 22.3 percent decline in average daily rate (11.6 percent using constant dollars) in the second quarter of 2009.
In North America comparable company-operated REVPAR declined 23.4 percent and comparable systemwide REVPAR declined 21.2 percent. REVPAR at the company’s comparable company-operated North American full-service and luxury hotels (including Marriott Hotels & Resorts, The Ritz-Carlton and Renaissance Hotels & Resorts) was down 23.5 percent driven by a 14.7 percent decline in average daily rate.
Marriott added 62 new properties (8,462 rooms) to its worldwide lodging portfolio in the 2009 second quarter, including the 118-room Renaissance Paris Arc de Triomphe. Three properties (861 rooms) exited the system during the quarter. At quarter-end, the company’s lodging group encompassed 3,286 properties and timeshare resorts for a total of nearly 577,000 rooms. As of the end of the second quarter, the company’s worldwide pipeline of hotels under construction, awaiting conversion or approved for development totaled over 110,000 rooms.
Reported results for the 2009 second quarter, the adjusted results and the associated reconciliations are shown on pages A-1 and A-13 of the accompanying schedules. The following paragraphs reflect adjusted results where indicated.
MARRIOTT REVENUES totaled approximately $2.6 billion in the 2009 second quarter compared to $3.2 billion for the second quarter of 2008. Base management and franchise fees declined 19 percent to $219 million reflecting worldwide declines in REVPAR in all brands offset in part by fees from new hotels. With continued soft lodging demand trends worldwide, second quarter incentive management fees declined 66 percent. The percentage of company-operated hotels earning incentive management fees declined to 23 percent in the 2009 second quarter compared to 58 percent in the year-ago quarter. Sixty-one percent of incentive management fees came from hotels outside of North America in the 2009 quarter compared to 37 percent in the 2008 quarter.
Worldwide comparable company-operated house profit margins declined 450 basis points in the second quarter reflecting weak REVPAR offset by continued efficiency improvements at the property level. House profit margins for comparable company-operated properties outside North America declined 310 basis points. North American comparable company-operated house profit margins declined 530 basis points from the year-ago quarter.
Owned, leased, corporate housing and other revenue, net of direct expenses, declined 54 percent in the 2009 second quarter, to $21 million, primarily reflecting weaker operating results at owned and leased properties, lower termination fees, and the impact of four hotels converting to management agreements during the second quarter of 2008, partially offset by higher branding fees.
Second quarter adjusted Timeshare segment contract sales declined 37 percent to $212 million excluding the $3 million allowance for fractional and residential contract cancellations recorded in the quarter. While demand remains soft, particularly in fractional and residential products, Marriott Vacation Club’s 25th Anniversary marketing program was successful. Second quarter 2009 adjusted contract sales were $55 million higher than adjusted first quarter 2009 levels.
In the second quarter of 2009, adjusted Timeshare sales and services revenue declined 24 percent to $295 million and, net of expenses, declined to $16 million from $77 million in the 2008 second quarter. Adjusted results reflected lower development profit due to continued soft demand for timeshare, fractional, and residential products and an $8 million charge related to an issue with a state tax authority. Financing profit declined largely as a result of the absence of a note sale in the second quarter of 2009, compared to a $29 million note sale gain recognized in the second quarter of 2008.
Adjusted Timeshare segment results, which includes Timeshare sales and services revenue, net of direct expenses, as well as base management fees, equity earnings, noncontrolling interest and general, administrative and other expenses associated with the timeshare business, totaled $15 million in the 2009 second quarter compared to $70 million in the prior year quarter.
ADJUSTED GENERAL, ADMINISTRATIVE AND OTHER expenses for the 2009 second quarter totaled $136 million, a 26 percent decline from the year-ago quarter reflecting cost reductions throughout the organization as well as an $8 million reversal of incentive compensation accruals.
GAINS AND OTHER INCOME totaled $3 million largely related to gains on the sale of real estate. The prior year’s second quarter gains totaled $9 million and included $5 million of gains on the sale of real estate, a $1 million gain from the sale of the company’s interest in a joint venture and $3 million of returns from joint venture investments.
INTEREST EXPENSE decreased $10 million in the second quarter primarily due to lower interest rates on short-term borrowings and lower debt balances.
BALANCE SHEET
At the end of second quarter 2009, total debt was $2,849 million and cash balances totaled $125 million, compared to $3,095 million in debt and $134 million of cash at year-end 2008. As of the end of the second quarter 2009, Marriott had unused capacity of approximately $1.4 billion under its $2.4 billion bank revolver.
COMMON STOCK
Weighted average fully diluted shares outstanding totaled 363.5 million in the 2009 second quarter compared to 371.3 million in the year-ago quarter. The remaining share repurchase authorization, as of June 19, 2009, totaled 21.3 million shares. No share repurchases are planned in 2009.
On May 1, 2009, the Board of Directors declared the issuance of a stock dividend payable on July 30, 2009, to shareholders of record on June 25, 2009. For periods prior to the stock dividend, all share and per share data in our condensed consolidated financial statements and related notes have been retroactively adjusted to reflect the stock dividend.
OUTLOOK
While Marriott typically provides a range of guidance for future performance, the current global economic and financial climate continues to make predictions very difficult. Therefore, the company is unable to give its typical guidance. Instead, the company is providing the following assumptions which it is using for internal planning purposes. For the third quarter, the company assumes North American comparable systemwide hotel REVPAR declines of 20 to 23 percent. For comparable systemwide hotels outside North America, the company assumes REVPAR declines of 22 to 24 percent on a constant dollar basis. Total fee revenue could total $210 million to $220 million, including incentive fees of only $0 to $10 million. Owned, leased, corporate housing and other revenue, net of direct expenses, could total $0 to $5 million.
In the third quarter, the company assumes Timeshare sales and services revenue, net of direct expenses, totals about $15 million. Third quarter Timeshare contract sales could total $165 million to $175 million.
The company anticipates that general, administrative and other expenses will total about $135 million to $145 million in the third quarter of 2009, a roughly 15 percent decline from the 2008 third quarter.
Based upon the above assumptions and a 39 percent tax rate, adjusted diluted EPS from continuing operations attributable to Marriott shareholders for the 2009 third quarter could total $0.09 to $0.14.
For the full year 2009, the company expects the business climate, particularly the pricing environment, to remain very unpredictable. In addition, booking windows remain very short. For comparable systemwide hotels in North America, the company continues to assume a 17 to 20 percent decline in REVPAR for full year 2009. With continued concerns regarding the H1N1 virus and weakening economies in most international markets, the company assumes full year 2009 REVPAR declines of 17 to 20 percent for comparable systemwide hotels outside North America on a constant dollar basis.
The company expects to open over 30,000 rooms in 2009 as most hotels expected to open are already under construction or undergoing conversion from other brands. All in all, fee revenue under these assumptions could total roughly $1,030 million to $1,060 million in 2009. The company estimates that incentive management fees in 2009 would derive largely from international markets. Owned, leased, corporate housing and other revenue, net of direct expenses, could total $55 million to $60 million in 2009. The company estimates that, on a full-year basis, one point of worldwide systemwide REVPAR impacts total fees by approximately $15 million to $20 million and one point of REVPAR impacts owned, leased, corporate housing and other revenue, net of direct expenses, by roughly $4 million.
Similar to lodging, timeshare demand is difficult to predict and the business is more complex to forecast and model, particularly in this weak economic environment. In 2009, if adjusted Timeshare segment contract sales total roughly $800 million, then adjusted Timeshare sales and services revenue, net of direct expenses, could total approximately $45 million. Base management fees associated with the timeshare business are likely to increase and timeshare site, regional and corporate overhead is likely to decline in 2009. In contrast, rental rates remain weak and maintenance fees on unsold units are likely to increase. While the company expects to complete an additional timeshare note sale in 2009, pricing is likely to remain unfavorable, so no note sale gain is assumed. Under this scenario, adjusted Timeshare segment results for 2009 could total approximately $25 million. The company estimates that a $50 million change in Timeshare segment contract sales could impact Timeshare segment pretax earnings by $5 million to $10 million.
The company anticipates that adjusted general, administrative and other expenses will decline from $751 million in 2008 to about $585 million to $605 million in 2009. Further, the company anticipates a 39 percent tax rate for the second half of the year.
While the company cannot forecast results with any certainty, based upon the above assumptions, adjusted diluted EPS from continuing operations attributable to Marriott shareholders for 2009 could total $0.76 to $0.86. Assuming the investment spending levels shown below, debt levels, net of cash, are expected to decline $600 million to $650 million during 2009.
The company expects investment spending in 2009 will decline by more than 50 percent from 2008 levels to approximately $325 million to $375 million. This investment spending estimate includes $145 million to $155 million for capital expenditures and maintenance capital spending, $25 million to $35 million for net timeshare development, $80 million to $90 million in new mezzanine financing and mortgage loans, $35 million to $45 million for contract acquisition costs and $40 million to $50 million in equity and other investments (including timeshare equity investments).
Marriott International, Inc. (NYSE:MAR) will conduct its quarterly earnings review for the investment community and news media on Thursday, July 16, 2009 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 July 16, 2010. The webcast will also be available as a podcast from the same site.
The telephone dial-in number for the conference call is 719-325-4805. A telephone replay of the conference call will be available from 1 p.m. ET, Thursday, July 16, 2009 until 8 p.m. ET, Thursday, July 23, 2009. To access the replay, call 719-457-0820. The reservation number for the recording is 8493117.
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