Marriott International Reports Second Quarter 2017 Results Highlights
Second quarter reported diluted EPS totaled $1.08, a 13 percent increase over prior year results. Second quarter adjusted diluted EPS totaled $1.13, a 35 percent increase over second quarter 2016 combined results. |
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Marriott International Reports Second Quarter 2017 Results Highlights
Second quarter reported diluted EPS totaled $1.08, a 13 percent increase over prior year results. Second quarter adjusted diluted EPS totaled $1.13, a 35 percent increase over second quarter 2016 combined results. |
Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2017-08-09
- Adjusted 2017 second quarter results exclude merger-related Combined 2016 second quarter results assume Marriott’s acquisition of Starwood and Starwood’s sale of its timeshare business had been completed on January 1, 2015;
- Worldwide comparable systemwide constant dollar RevPAR rose 2.2 percent in the 2017 second quarter, while North American comparable systemwide constant dollar RevPAR rose 0.9 percent;
- The company added roughly 16,000 rooms during the second quarter, including nearly 2,300 rooms converted from competitor brands and more than 5,900 rooms in international markets;
- At quarter-end, Marriott’s worldwide development pipeline increased to more than 440,000 rooms, including roughly 42,000 rooms approved, but not yet subject to signed contracts;
- Second quarter reported net income totaled $414 million, a 68 percent increase over prior year results. Second quarter adjusted net income totaled $432 million, a 30 percent increase over prior year combined results;
- Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $834 million in the quarter, a 69 percent increase over second quarter 2016 adjusted EBITDA and an 8 percent increase over second quarter 2016 combined adjusted EBITDA;
- Marriott repurchased 7.3 million shares of the company’s common stock for $725 million during the second quarter. Year-to-date through August 4, the company repurchased 16.0 million shares for $1.5 billion.
Marriott International, Inc. (NASDAQ: MAR) today reported second quarter 2017 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 second 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 adjustments; and (b) combined financials and selected performance information for 2016 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.”
Branding fees from credit cards and residential sales are reported in the Franchise fees line on the income statement. Prior to the first quarter of 2017, those fees were reported in Owned, leased and other revenue. Reported results for the 2016 second quarter on page A-1 and combined results on page A-3 have been reclassified to conform to the current reporting.
Arne M. Sorenson, president and chief executive officer of Marriott International, said, “We posted solid performance in the second quarter of 2017. Worldwide comparable systemwide constant dollar RevPAR increased more than 2 percent with particularly strong transient demand in the Europe and Asia Pacific regions. Strong RevPAR in London, Shanghai and Barcelona reflected surging demand for those markets. In North America, systemwide occupancy exceeded 78 percent and Hawaii, Orlando, Toronto and Montreal reported robust RevPAR gains.
“Worldwide house profit margins for company-operated hotels increased 50 basis points in the quarter, exceeding 39 percent, benefiting from higher RevPAR and synergies from the Starwood acquisition.
“Integration of the Starwood transaction is on track. We’ve rolled out guestVoice to measure guest feedback, introduced SPG Mobile check-in and check-out in North America, and achieved procurement and OTA cost savings.
“While integrating, we are also innovating. Today, we announced a joint venture agreement with Alibaba, the largest e-commerce platform in the world with over 500 million active mobile users, to develop a travel storefront that leverages Alibaba’s digital travel platform, retail expertise, and digital payment platform, Alipay. We expect that this joint venture will increase Chinese travel to our hotels worldwide, grow membership of our loyalty programs and reduce our distribution costs.
“We remain committed to delivering outstanding profit growth and maximizing total shareholder returns. Year-to-date, we’ve repurchased 16.0 million shares for approximately $1.5 billion and we expect to return roughly $2.5 billion to our shareholders through share repurchases and dividends in 2017.”
Second Quarter 2017 GAAP – Financial Results As Reported
Marriott reported net income totaled $414 million in the 2017 second quarter, a 68 percent increase over 2016 second quarter net income of $247 million. Reported diluted earnings per share (EPS) was $1.08 in the quarter, a 13 percent increase from diluted EPS of $0.96 in the year-ago quarter.
Base management and franchise fees totaled $701 million in the 2017 second quarter, compared to $459 million in the year-ago quarter. The year-over-year increase in these fees is primarily attributable to the Starwood acquisition, higher RevPAR, unit growth, higher relicensing fees and an increase in branding fees.
Second quarter worldwide incentive management fees increased to $148 million, compared to $94 million in the year-ago quarter. The year-over-year increase was largely attributable to the Starwood acquisition and higher net house profit at many properties.
Owned, leased, and other revenue, net of direct expenses, totaled $103 million in the 2017 second quarter, compared to $34 million in the year-ago quarter. The year-over-year increase is primarily attributable to the Starwood acquisition and $5 million of business interruption proceeds.
Depreciation, amortization, and other expenses totaled $85 million in the second quarter, compared to $30 million in the year-ago quarter. The year-over-year increase is primarily attributable to the Starwood acquisition, including $18 million of purchase accounting revisions, $6 million of which was related to the second quarter and $12 million of which would have been recognized in prior periods had the revisions been included in the original purchase accounting on the acquisition date.
General, administrative, and other expenses for the 2017 second quarter totaled $226 million, compared to $154 million in the year-ago quarter. The year-over-year increase is primarily attributable to the Starwood acquisition, inclusive of general administrative cost savings from combined company synergies and higher incentive compensation expense.
Gains and other income, net, increased $25 million year-over-year in the 2017 second quarter, largely reflecting a $24 million gain on the sale of the Charlotte Marriott City Center.
Interest expense, net, totaled $65 million in the second quarter compared to $50 million in the year-ago quarter. The increase largely reflects a higher commercial paper balance and related interest rate, higher Senior Note balances due to debt assumed in the Starwood acquisition, which the company subsequently exchanged for new Marriott Senior Notes, and net higher interest on Senior Notes due to issuances and maturities, partially offset by $11 million of transition and transaction costs related to the Starwood acquisition incurred in the 2016 second quarter.
Equity in earnings for the 2017 second quarter totaled $12 million, compared to $5 million in the year-ago quarter. The year-over-year increase is primarily attributable to the Starwood acquisition.
The provision for income taxes totaled $178 million in the second quarter, a 30.1 percent effective tax rate, compared to $97 million in the year-ago quarter, a 28.2 percent effective tax rate. The provision for the second quarter of 2017 includes a $13 million tax benefit resulting from the adoption of Accounting Standards Update 2016-09 (“ASU 2016-09”), which changes the GAAP reporting of excess tax benefits associated with employee stock-based compensation, as well as $11 million of net favorable discrete tax items. The provision for the second quarter of 2016 included $10 million of net favorable discrete tax items.
For the second quarter, adjusted EBITDA totaled $834 million, a 69 percent increase over second quarter 2016 adjusted EBITDA of $494 million. See page A-12 for the adjusted EBITDA calculation.
Second Quarter 2017 Financial Results As Adjusted Compared to Second Quarter 2016 Combined Financial Results
This information is being presented to allow shareholders to more easily compare the 2017 second quarter adjusted results with the combined results for the second quarter of 2016. 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 for the 2016 second quarter discussed in this section make the following assumptions: (1) removes merger-related adjustments; (2) removes a $91 million 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 2017 second quarter exclude merger-related adjustments. See page A-3 for the calculation of adjusted results, as well as combined results for the year-ago quarter.
Second quarter 2017 adjusted net income totaled $432 million, a 30 percent increase over 2016 second quarter combined net income of $333 million. Adjusted net income for the second quarter of 2017 excludes $26 million ($18 million after-tax) of merger-related adjustments. Adjusted diluted EPS in the second quarter totaled $1.13, a 35 percent increase from combined diluted EPS of $0.84 in the year-ago quarter.
Base management and franchise fees totaled $701 million in the second quarter of 2017, an 8 percent increase over combined base management and franchise fees of $652 million in the year-ago quarter. The year-over-year increase largely reflects higher RevPAR, unit growth, higher relicensing fees and an increase in branding fees, partially offset by unfavorable foreign exchange.
Second quarter incentive management fees increased to $148 million, compared to combined fees of $136 million in the 2016 second quarter. The year-over-year increase was largely due to higher net house profit at many properties worldwide.
Adjusted owned, leased, and other revenue, net of direct expenses, totaled $102 million, compared to combined revenue, net of expenses of $115 million in the year-ago quarter. The adjusted year-over-year decrease largely reflects the impact of hotels previously sold and lower results in New York, partially offset by $5 million of business interruption proceeds and stronger results at other owned and leased hotels. Combined revenue, net of expenses for the second quarter of 2016 included $18 million of results from hotels subsequently sold.
General, administrative, and other expenses for the 2017 second quarter totaled $226 million, compared to combined expenses of $247 million in the year-ago quarter. The decrease in expenses year-over-year was largely due to general administrative cost savings.
Gains and other income, net, totaled $25 million in the 2017 second quarter, compared to $23 million of combined losses and other income, net, in the 2016 second quarter. Results in the 2017 second quarter include a $24 million gain on the sale of the Charlotte Marriott City Center. Results in the 2016 quarter include a $24 million impairment of the Sheraton Paris Airport.
Interest expense, net, totaled $65 million in the second quarter, compared to combined net expense of $70 million in the year-ago quarter. The decrease was largely due to the maturity of Series H Senior Notes.
The adjusted provision for income taxes totaled $186 million in the second quarter, a 30.1 percent effective rate, compared to the combined provision for taxes of $161 million in the 2016 second quarter, a 32.6 percent effective rate. The adjusted provision for the second quarter of 2017 includes a $9 million tax benefit resulting from the adoption of ASU 2016-09, as well as $11 million of net favorable discrete tax items. The combined provision for the second quarter of 2016 included $10 million of net favorable discrete tax items.
For the second quarter, adjusted EBITDA totaled $834 million, an 8 percent increase over second quarter 2016 combined adjusted EBITDA of $773 million. Combined adjusted EBITDA for the second quarter of 2016 included $18 million of results from hotels subsequently sold. See page A-12 for the adjusted EBITDA and combined adjusted EBITDA calculations.
Second Quarter 2017 Financial Results Compared to May 8, 2017 Guidance
On May 8, 2017, the company estimated total fee revenue for the second quarter would be $820 million to $835 million. Actual total fee revenue of $849 million in the quarter was higher than estimated, largely reflecting better than expected branding fees and relicensing fees. Incentive fees in the North America, Europe and Asia Pacific regions also exceeded expectations.
Marriott estimated owned, leased, and other revenue, net of direct expenses, for the second quarter would total approximately $90 million. Actual adjusted results of $102 million in the quarter were higher than estimated, largely due to $3 million of termination fees, $5 million of business interruption proceeds and better than expected results at several owned and leased hotels.
The company estimated depreciation, amortization, and other expenses for the second quarter would total approximately $65 million. Actual adjusted expenses of $79 million in the quarter were higher than expected, largely due to $12 million of purchase accounting revisions, $6 million of which was related to the second quarter and $6 million of which would have been recognized in the first quarter had the revisions been included in the original purchase accounting on the acquisition date.
The company estimated gains and other income for the second quarter would total approximately $0 million. Actual gains of $25 million in the quarter were higher than expected, largely due to a $24 million gain on the sale of the Charlotte Marriott City Center.
The company estimated adjusted EBITDA for the second quarter would total $795 million to $815 million. Actual adjusted EBITDA of $834 million was higher than expected due to strong fee revenue and owned, leased and other revenues, net of direct expenses.
Selected Performance Information
Combined information for the 2016 second quarter 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 100 new properties (15,573 rooms) to its worldwide lodging portfolio during the 2017 second quarter, including The Ritz-Carlton, Astana in Kazakhstan, the W Shanghai – The Bund, and the Fairfield by Marriott Nanning Nanhu Park, the first Fairfield in China. Seven properties (1,090 rooms) exited the system during the quarter. At quarter-end, Marriott’s lodging system encompassed 6,254 properties and timeshare resorts with nearly 1,218,000 rooms.
At quarter-end, the company’s worldwide development pipeline totaled 2,597 properties with more than 440,000 rooms, including 957 properties with approximately 175,000 rooms under construction and 229 properties with roughly 42,000 rooms approved for development, but not yet subject to signed contracts.
In the 2017 second quarter, worldwide comparable systemwide constant dollar RevPAR increased 2.2 percent (a 1.4 percent increase using actual dollars). North American comparable systemwide constant dollar RevPAR increased 0.9 percent (a 0.8 percent increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 5.8 percent (a 3.1 percent increase using actual dollars) for the same period. These RevPAR growth statistics compare the second quarter of 2017 to combined comparable systemwide RevPAR for the second quarter of 2016.
In the 2017 second quarter, 64 percent of worldwide company-managed hotels earned incentive management fees. In North America, 57 percent of company-managed hotels earned incentive management fees in the quarter, while 70 percent of company-managed hotels outside North America earned incentive management fees. In addition, the company earned 56 percent of its incentive management fees in the 2017 second quarter at properties outside North America.
Worldwide comparable company-operated house profit margins increased 50 basis points in the second quarter, largely due to higher RevPAR and synergies from the Starwood acquisition, including procurement savings. House profit margins for comparable company-operated properties outside North America rose 140 basis points, while North American comparable company-operated house profit margins declined 10 basis points in the second quarter. These house profit margin statistics compare the second quarter of 2017 to combined comparable company-operated house profit margins for the second quarter of 2016.
Balance Sheet
At quarter-end, Marriott’s total debt was $8,313 million and cash balances totaled $498 million, compared to $8,506 million in debt and $858 million of cash at year-end 2016.
Marriott Common Stock
Weighted average fully diluted shares outstanding used to calculate reported diluted EPS totaled 383.0 million in the 2017 second quarter, compared to 258.0 million shares in the year-ago quarter. Weighted average fully diluted shares outstanding used to calculate combined diluted EPS totaled 394.6 million in the 2016 second quarter.
The company repurchased 7.3 million shares of common stock in the second quarter at a cost of $725 million at an average price of $98.62. Year-to-date through August 4, the company has repurchased 16.0 million shares for $1.5 billion at an average price of $93.84.
OUTLOOK
The following outlook for the third quarter, fourth quarter and full year 2017 does not include merger-related adjustments, which the company cannot accurately forecast, but are likely to be more than $125 million on a full-year basis.
Branding fees from credit cards and residential sales are reported in the Franchise fees line on the income statement. Prior to the first quarter of 2017, those fees were reported in Owned, leased and other revenue. In 2016, combined fees from credit cards and residential sales totaled $48 million in the third quarter, $60 million in the fourth 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 reflect this change in reporting. On February 15, 2017, the company issued further schedules setting forth combined quarterly and full year combined financial information for both 2015 and 2016 that reflect this change in presentation, and included those schedules in a Form 8-K filed on that date. Those schedules are available on Marriott’s Investor Relations website at http://www.marriott.com/investor.
For the 2017 third quarter, Marriott expects comparable systemwide RevPAR on a constant dollar basis for the combined company will be roughly flat in North America. The company’s guidance for third quarter RevPAR growth in North America reflects the shift of the Jewish holidays, which fall in the third quarter of 2017 compared to the fourth quarter of 2016, as well as the Fourth of July shift to mid-week year-over-year. The company expects third quarter comparable systemwide RevPAR on a constant dollar basis for the combined company will increase 3 to 5 percent outside North America and 1 to 2 percent worldwide.
The company assumes third quarter total fee revenue will total $810 million to $825 million. These fee revenue estimates reflect about $5 million of unfavorable foreign exchange.
Marriott expects third quarter 2017 owned, leased, and other revenue, net of direct expenses, could total approximately $75 million. This estimate reflects the negative impact of hotels previously sold. The company expects that owned, leased results in the third quarter will be constrained by tough comparisons to the 2016 Olympics.
Marriott expects third quarter 2017 adjusted EBITDA could total $770 million to $790 million, reflecting tough comparisons caused by the Olympics and the shift in the Jewish holidays year-over-year. This estimate reflects the negative impact of hotels previously sold. See page A-13 for the adjusted EBITDA calculation.
For the 2017 fourth quarter, Marriott expects comparable systemwide RevPAR on a constant dollar basis for the combined company will increase 1 to 3 percent in North America, 2 to 4 percent outside North America and 1 to 3 percent worldwide.
The company assumes fourth quarter total fee revenue will total $804 million to $849 million. These fee revenue estimates reflect about $5 million of unfavorable foreign exchange.
Marriott expects fourth quarter 2017 owned, leased, and other revenue, net of direct expenses, could total approximately $97 million. This estimate reflects the negative impact of hotels previously sold.
For the full year 2017, Marriott expects comparable systemwide RevPAR on a constant dollar basis for the combined company will increase 1 to 2 percent in North America, 3 to 5 percent outside North America and 1 to 3 percent worldwide.
For the combined company, Marriott anticipates net room additions of 6 percent for full year 2017.
The company assumes full year 2017 total fee revenue will total $3,245 million to $3,305 million. Compared to the total fee revenue estimates the company provided on May 8, these fee revenue estimates reflect the better than expected fees in the second quarter.
Marriott expects full year 2017 owned, leased, and other revenue, net of direct expenses, could total approximately $355 million. This estimate reflects the negative impact of hotels previously sold. Compared to the owned, leased and other revenue, net of direct expenses, estimates the company provided on May 8, these estimates reflect the $5 million of business interruption proceeds and $3 million of termination fees received in the second quarter.
The company anticipates depreciation, amortization, and other expenses will total approximately $290 million for full year 2017. Compared to the estimate the company provided on May 8, this forecast reflects updated purchase accounting.
Marriott expects full year 2017 adjusted EBITDA could total $3,131 million to $3,201 million. This estimate reflects the negative impact of hotels previously sold. See page A-14 for the adjusted EBITDA calculation.
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Third Quarter 2017 |
Fourth Quarter 2017 |
Full Year 2017 |
| Total fee revenue1 |
$810 million to $825 million |
$804 million to $849 million |
$3,245 million to $3,305 million |
| Owned, leased and other revenue, net of direct expenses1 |
Approx. $75 million |
Approx. $97 million |
Approx. $355 million |
| Depreciation, amortization, and other expenses |
Approx. $70 million |
Approx. $73 million |
Approx. $290 million |
| General, administrative, and other expenses |
$215 million to $220 million |
$229 million to $234 million |
$880 million to $890 million |
| Operating income |
$595 million to $615 million |
$594 million to $644 million |
$2,420 million to $2,490 million |
| Gains and other income |
Approx. $0 million |
Approx. $0 million |
Approx. $25 million |
| Net interest expense2 |
Approx. $60 million |
Approx. $67 million |
Approx. $255 million |
| Equity in earnings (losses) |
Approx. $5 million |
Approx. $7 million |
Approx. $35 million |
| Earnings per share3 |
$0.96 to $0.99 |
$0.96 to $1.05 |
$4.06 to $4.18 |
| Tax rate4 |
33.0 percent |
33.0 percent |
30.5 percent |
1Beginning in the first quarter of 2017, the company reports credit card and residential branding fees in Franchise fees revenue. Prior to first quarter of 2017, those fees were reported in Owned, leased and other revenue. Combined credit card and residential branding fees totaled $48 million in Third Quarter 2016, $60 million in the Fourth Quarter of 2016 and $210 million for Full Year 2016.
2Net of interest income
3Guidance for Full Year 2017 EPS includes the $0.12 expected favorable impact from the adoption of ASU 2016-09.
4The tax rate guidance for Full Year 2017 includes the $46 million benefit from the adoption of ASU 2016-09, but does not include the impact of merger-related adjustments that have been or may be made. Without the benefit from adoption of ASU 2016-09, the anticipated tax rate for Full Year 2017 would be 33.0 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 additional asset sales, roughly $2.5 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 Monday, August 7, 2017 at 5:30 p.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 August 7, 2018.
The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 44478190. A telephone replay of the conference call will be available from 8:30 p.m. ET, Monday, August 7, 2017 until 8 p.m. ET, Monday, August 14, 2017. To access the replay, call 404-537-3406. The conference ID for the recording is 44478190.
About Marriott International, Inc.
Marriott International, Inc. (NASDAQ: MAR) is the world’s largest hotel company based in Bethesda, Maryland, USA, with more than 6,200 properties in 125 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.
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