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Marriott International Reports First Quarter 2016 Results

May 2, 2016 Financial No Comments Email Email

First quarter 2016 adjusted net income totaled $226 million, a 9 percent increase over 2015 first quarter net income.  Adjusted diluted earnings per share (EPS) in the first quarter totaled $0.87, a 19 percent increase from diluted EPS in the year-ago quarter.http://www.questexevents.net/hmtsummit  Adjusted net income and adjusted diluted EPS for the first quarter of 2016 exclude $10 million ($7 million after-tax and $0.02 per diluted share) of transition and transaction costs related to the Starwood acquisition.  On February 17, 2016, the company forecasted first quarter diluted EPS of $0.81 to $0.85, which did not include transition and transaction costs related to the Starwood acquisition.

Reported net income totaled $219 million in the first quarter of 2016 compared to $207 million in the year-ago quarter.  Reported diluted EPS was $0.85 in the first quarter of 2016 compared to $0.73 in the first quarter of 2015.

Arne M. Sorenson, president and chief executive officer of Marriott International, said, “We were pleased with our results for the first quarter with adjusted diluted EPS meaningfully ahead of expectations.  Worldwide systemwide comparable RevPAR rose 2.6 percent in constant dollars in the quarter.  For the remainder of the year, our North American managed full-service group revenue pace is up 7 percent, with particular strength in the second and third quarters.”

“Demand for our brands remains strong.  Our development pipeline increased to more than 275,000 rooms in the first quarter compared to 240,000 rooms in the year-ago quarter.  Our flagship brands, Marriott and Courtyard, both reimagined and reinvented, continue to be favored by our owners and franchisees.  Together, those brands make up over 35 percent of our pipeline worldwide.  Yet, our seven newest brands, many in the lifestyle space popular with a new generation of travelers, are also gaining great traction, comprising more than 15 percent of our pipeline.  We welcomed two of our newest brands, Moxy and Delta, to the United States in the quarter.

“Our planned acquisition of Starwood Hotels & Resorts is on track.  Shareholders of both companies overwhelmingly approved proposals relating to the merger and we continue to look forward to a mid-2016 closing.  Toward that end, integration teams from both companies have been working over the last several months to ensure a smooth transition.  We look forward to creating the largest lodging company in the world.”

For the 2016 first quarter, RevPAR for worldwide comparable systemwide properties increased 2.6 percent (a 1.2 percent increase using actual dollars).

In North America, comparable systemwide RevPAR increased 2.4 percent (a 2.2 percent increase using actual dollars) in the first quarter of 2016, including a 2.6 percent increase (a 2.4  percent increase in actual dollars) in average daily rate.  RevPAR for comparable systemwide North American full-service hotels (including Marriott Hotels,Renaissance Hotels, Autograph Collection Hotels, Gaylord Hotels, The Ritz-Carlton andEDITION) increased 2.9 percent (a 2.6 percent increase in actual dollars) with a 2.7 percent increase (a 2.5 percent increase in actual dollars) in average daily rate.  RevPAR for comparable systemwide North American limited-service hotels (including Residence Inn, Courtyard, Fairfield Inn & Suites, TownePlace Suites, SpringHill Suites and AC Hotels by Marriott) increased 2.0 percent (a 1.8 percent increase in actual dollars) in the first quarter of 2016 with a 2.4 percent increase (a 2.2 percent increase in actual dollars) in average daily rate.

International comparable systemwide RevPAR rose 3.5 percent (a 2.5 percent decline using actual dollars) in the first quarter of 2016.

Marriott added 68 new properties (10,023 rooms) to its worldwide lodging portfolio in the 2016 first quarter, including the Moxy Phoenix Tempe and the Delta Orlando Lake Buena Vista.  Twelve properties (1,781 rooms) exited the system during the quarter.  At quarter-end, the company’s lodging system encompassed 4,480 properties and timeshare resorts for a total of more than 767,000 rooms.

The company’s worldwide development pipeline totaled 1,705 properties with more than 275,000 rooms at quarter-end, including more than 600 properties with over 104,000 rooms under construction and 188 properties with approximately 29,000 rooms approved for development, but not yet subject to signed contracts.

MARRIOTT REVENUES totaled nearly $3.8 billion in the 2016 first quarter compared to revenues of over $3.5 billion for the first quarter of 2015.  Base management and franchise fees totaled $379 million compared to $369 million in the year-ago quarter.  The year-over-year increase largely reflects higher RevPAR and new unit growth, partially offset by $15 million of lower relicensing fees and $7 million of unfavorable foreign exchange.

First quarter worldwide incentive management fees increased 13 percent to $101 million, primarily due to higher RevPAR and house profit margins, as well as the $2 million favorable recognition of a deferred incentive fee, partially offset by $3 million of unfavorable foreign exchange.  In North America alone, incentive fees increased 23 percent.  In the first quarter, 63 percent of worldwide company-managed hotels earned incentive management fees compared to 48 percent in the year-ago quarter.

Worldwide comparable company-operated house profit margins increased 70 basis points in the first quarter with higher room rates, improved productivity and lower utility costs.  House profit margins for comparable company-operated properties outside North America increased 40 basis points and North American comparable company-operated house profit margins increased 90 basis points from the year-ago quarter.

Owned, leased, and other revenue, net of direct expenses, totaled $81 million, compared to $63 million in the year-ago quarter.  The year-over-year increase largely reflects higher residential and credit card branding fees, as well as higher termination fees and improved results at two recently renovated leased properties.  The increases were partially offset by the impact of the sale of one international owned property in the fourth quarter of 2015.

On February 17, the company estimated owned, leased, and other revenue, net of direct expenses for the first quarter would total $60 million to $65 million.  Actual results in the quarter were higher than expected largely due to $10 million of residential and credit card branding fees and better than expected operating results at three leased properties.

DEPRECIATION, AMORTIZATION, and OTHER expenses totaled $31 million in the first quarter of 2016 compared to $44 million in the year-ago quarter.  Expenses in the 2015 first quarter included $12 million of impairment charges.

ADJUSTED GENERAL, ADMINISTRATIVE, and OTHER expenses for the 2016 first quarter totaled $155 million compared to $145 million in the year-ago quarter.  The increase in adjusted expenses year-over-year was largely due to higher routine administrative costs and growth.  The 2016 first quarter benefited from $10 million of lower reserves for guarantee funding.  The 2015 first quarter benefited from $12 million of favorable litigation resolutions.

On February 17, the company estimated general, administrative, and other expenses for the first quarter would total approximately $160 million, not including transition and transaction costs related to the Starwood acquisition.  Actual adjusted expenses in the quarter were lower than expected largely due to open associate positions.

ADJUSTED INTEREST EXPENSE, NET increased $11 million in the first quarter to $39 million, largely due to higher interest expense associated with new debt issuances and lower capitalized interest expense.

Adjusted Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)

For the first quarter, adjusted EBITDA totaled $458 million, a 7 percent increase over first quarter 2015 adjusted EBITDA of $429 million.  See page A-5 for the adjusted EBITDA calculation.

BALANCE SHEET

At quarter-end, total debt was $4,159 million and cash balances totaled $99 million, compared to $4,107 million in debt and $96 million of cash at year-end 2015.

COMMON STOCK

Weighted average fully diluted shares outstanding used to calculate diluted EPS totaled 258.9 million in the 2016 first quarter, compared to 283.5 million in the year-ago quarter.

The company repurchased 3.7 million shares of common stock in the first quarter at a cost of $225 million.

OUTLOOK

Marriott’s second quarter and full year outlook do not include the impact of the pending Starwood acquisition. 

For the 2016 second quarter, the company expects comparable systemwide RevPAR on a constant dollar basis will increase 3 to 5 percent in North America, 2 to 4 percent outside North America and 3 to 5 percent worldwide.

Not including any impact from the pending Starwood acquisition, second quarter 2016 diluted EPS could total $0.96 to $1.00, a 10 to 15 percent increase year-over-year, and second quarter adjusted EBITDA could total $495 million to $510 million, an 8 to 12 percent increase year-over-year. See page A-6 for the adjusted EBITDA calculation.

For full year 2016, the company expects comparable systemwide RevPAR on a constant dollar basis will increase 3 to 5 percent in North America, outside North America and worldwide.

The company anticipates gross room additions of approximately 8 percent, or 7 percent, net, worldwide for the full year 2016.

The company assumes full year fee revenue could total $1,995 million to $2,045 million, growth of 7 to 9 percent over 2015 fee revenue of $1,870 million.  This fee revenue estimate reflects roughly $35 million of negative impact from foreign exchange year-over-year.

The company anticipates worldwide incentive management fees will increase 10 to 15 percent for full year 2016. The company estimates that incentive fees for the full year will include $9 million of unfavorable foreign exchange.

For 2016, the company anticipates general, administrative and other expenses will total $645 million to $655 million, a 2 to 3 percent increase compared to 2015 expenses of $634 million.

Given the uncertainty regarding the precise timing of the Starwood transaction and the resulting interest expense and share issuances, the company is not providing full year 2016 EPS guidance at this time.  Not including the impact of the Starwood transaction, the company expects full year 2016 operating income could total $1,520 million to $1,585 million, a 13 to 17 percent increase year-over-year, and adjusted EBITDA could total $1,900 million to $1,965 million, an 11 to 14 percent increase year-over-year.  See page A-7 for the adjusted EBITDA calculation.

 

  Second Quarter 2016 Full Year 2016
Total fee revenue $520 million to $530 million $1,995 million to $2,045 million
Owned, leased and other revenue, net of direct expenses Approx. $75 million $310 million to $315 million
Depreciation, amortization, and other expenses Approx. $30 million Approx. $130 million
General, administrative, and other expenses $155 million to $160 million $645 million to $655 million
Operating income $405 million to $420 million $1,520 million to $1,585 million
Gains and other income Approx. $0 million Approx. $5 million
Net interest expense1 Approx. $40 million
Equity in earnings (losses) Approx. $0 million Approx. $10 million
Earnings per share $0.96 to $1.00
Tax rate  32.1 percent
Adjusted EBITDA  $495 million to $510 million  $1,900 million to $1,965 million

1Net of interest income

The company expects investment spending (not including Starwood) in 2016 will total approximately $450 million to $550 million, including approximately $100 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.

Going forward, the company will continue to adjust reported results to exclude transition and transaction costs related to the Starwood acquisition.  While the company is unable to estimate transition costs, it expects transactions costs will total $130 million to $150 million.

Marriott International, Inc. (NASDAQ: MAR) will conduct its quarterly earnings review for the investment community and news media on Thursday, April 28, 2016 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 April 28, 2017.

The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 23007381.  A telephone replay of the conference call will be available from 1 p.m. ET, Thursday, April 28, 2016 until 8 p.m. ET, Thursday, May 5, 2016.  To access the replay, call 404-537-3406.  The conference ID for the recording is 23007381.

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