Second quarter 2015 net income totaled $240 million, a 25 percent increase over 2014 second quarter net income. Diluted earnings per share (EPS) in the second quarter totaled $0.87, a 36 percent increase from diluted EPS in the year-ago quarter. Second quarter 2015 results reflect a $41 million pretax gain ($25 million after-tax and $0.09 per diluted share) on the redemption of a preferred equity ownership interest and $22 million of pretax losses ($13 million after-tax and $0.04 per diluted share) on the expected disposition of real estate. Excluding these items, second quarter 2015 adjusted net income totaled $228 million and adjusted diluted EPS was $0.82. These two items were not included in the company’s April 29, 2015 second quarter forecasted EPS of $0.78 to $0.83.
Second quarter 2014 net income totaled $192 million and diluted EPS totaled $0.64. Second quarter 2014 results reflected $33 million pretax ($21 million after-tax and $0.07 per diluted share) of previously disclosed charges. Excluding those items, second quarter 2014 adjusted net income totaled $213 million and adjusted diluted EPS was $0.71. See page A-11 for the adjusted EPS calculations for the second quarters of 2015 and 2014.
Arne M. Sorenson, president and chief executive officer of Marriott International, said, “We were pleased with our results in the quarter. Our worldwide RevPAR grew over 5 percent and rooms growth increased more than 6 percent. With many hotels reporting peak occupancy rates, room rates continue to move higher.
“We opened over 20,000 rooms in the second quarter including 9,600 rooms in Canada from our acquisition of the Delta Hotels and Resorts brand. We see great growth potential for Delta around the world. In just the last two months, we have received inquiries regarding the possible conversion of more than 50 hotels in the U.S. and Canada to the Delta brand.
“At quarter-end, our worldwide development pipeline exceeded 1,500 hotels with more than 250,000 rooms, a new record. We have already reached our goal to have one million rooms open or under development nearly six months ahead of plan. We continue to expect to increase our open rooms distribution by 8 percent gross, 7 percent net, in 2015.
“As of today, we have returned nearly $1.5 billion to our shareholders through share repurchases and dividends in 2015. We expect to return more than $2.0 billion in 2015. Over the past 24 months, we have returned $3.4 billion to shareholders and have reduced our fully diluted weighted average share count by nearly 12 percent.”
For the 2015 second quarter, RevPAR for worldwide comparable systemwide properties increased 5.3 percent (a 3.1 percent increase using actual dollars).
In North America, comparable systemwide RevPAR increased 5.4 percent (a 5.1 percent increase using actual dollars) in the second quarter of 2015, including a 5.1 percent increase (a 4.8 percent increase in actual dollars) in average daily rate. RevPAR for comparable systemwide North American full-service hotels (including Marriott Hotels,The Ritz-Carlton, Renaissance Hotels, Gaylord Hotels and Autograph Collection Hotels) increased 4.6 percent (a 4.3 percent increase in actual dollars) with a 4.5 percent increase (a 4.1 percent increase in actual dollars) in average daily rate. RevPAR for comparable systemwide North American limited-service hotels (including Courtyard, Residence Inn, SpringHill Suites, TownePlace Suites and Fairfield Inn & Suites) increased 6.1 percent (a 5.8 percent increase in actual dollars) in the second quarter with a 5.7 percent increase (a 5.3 percent increase in actual dollars) in average daily rate.
International comparable systemwide RevPAR rose 4.5 percent (a 5.3 percent decline using actual dollars) in the second quarter. International RevPAR growth was constrained during the quarter by the earlier start of Ramadan.
Marriott added 101 new properties (20,289 rooms) to its worldwide lodging portfolio in the 2015 second quarter, including 37 properties (9,595 rooms) from the Delta transaction. Twelve properties (937 rooms) exited the system during the quarter. At quarter-end, the company’s lodging system encompassed 4,317 properties and timeshare resorts for a total of nearly 743,000 rooms.
The company’s worldwide development pipeline totaled over 1,500 properties with more than 250,000 rooms at quarter-end, including roughly 520 properties with nearly 93,000 rooms under construction and roughly 225 properties with approximately 35,000 rooms approved for development, but not yet subject to signed contracts.
MARRIOTT REVENUES totaled approximately $3.7 billion in the 2015 second quarter compared to revenues of nearly $3.5 billion for the second quarter of 2014. Base management and franchise fees totaled $412 million compared to $370 million in the year-ago quarter, an increase of 11 percent. The increase largely reflects higher RevPAR, new unit growth, the recognition of $5 million of previously deferred base management fees and a $3 million increase in application and relicensing fees, partially offset by $4 million of unfavorable foreign exchange.
Second quarter worldwide incentive management fees totaled $81 million, flat compared to the year-ago quarter primarily due to higher RevPAR and house profit margins, offset by year-over-year declines of $5 million due to renovations at a few North American properties and $4 million of unfavorable foreign exchange. The 2014 second quarter fees include $2 million of favorable timing of fee recognition. In the 2015 second quarter, 59 percent of worldwide company-managed hotels earned incentive management fees compared to 45 percent in the year-ago quarter.
On its April 30 first quarter earnings call, the company indicated that incentive management fees would likely be flat year-over-year in the second quarter.
The company anticipates that worldwide incentive management fees will increase at a low teens rate for both the third quarter and full year 2015.
Worldwide comparable company-operated house profit margins increased 70 basis points in the second quarter with higher room rates, improved productivity, and lower food and utility costs. House profit margins for comparable company-operated properties outside North America increased 60 basis points and North American comparable company-operated house profit margins increased 80 basis points from the year-ago quarter.
Owned, leased, and other revenue, net of direct expenses, totaled $60 million, compared to $70 million in the year-ago quarter. The year-over-year decrease largely reflects $4 million of lower residential branding fees, $3 million of higher pre-opening expenses and $3 million of lower results from one North American full-service hotel under renovation.
DEPRECIATION, AMORTIZATION, and OTHER expenses totaled $32 million in the 2015 second quarter compared to $47 million in the year-ago quarter. The 2014 second quarter includes $15 million of impairment charges.
GENERAL, ADMINISTRATIVE, and OTHER expenses for the 2015 second quarter totaled $152 million compared to $159 million in the year-ago quarter. Expenses for the year-ago quarter include a $7 million foreign exchange loss associated with the Venezuelan Bolivar.
On April 29, the company estimated general, administrative, and other expenses for the second quarter would total $160 million to $165 million, not including Delta transition and transaction costs. Actual expenses in the quarter were lower than expected largely due to favorable timing and general admin savings, as well as lower legal expenses and lower net development costs. Actual Delta transition and transaction costs in the second quarter totaled $3 million.
GAINS AND OTHER INCOME, NET totaled $20 million in the quarter compared to $3 million in the year-ago quarter. Gains in the 2015 second quarter include a $41 million pretax gain on the redemption of a preferred equity ownership interest partially offset by $22 million of pretax losses on the expected disposition of real estate. These two items were not included in the company’s April 29 second quarter forecast.
INTEREST EXPENSE, NET increased $10 million in the second quarter. Interest expense for the second quarter increased $12 million largely due to lower capitalized interest expense and higher interest expense associated with a new debt issuance. Interest income increased $2 million largely due to a year-over-year increase in loans receivable.
EQUITY IN EARNINGS (LOSSES) increased $10 million in the second quarter to $2 million. The $8 million of equity losses in the year-ago quarter reflected an $11 million litigation reserve.
Adjusted Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)
For the second quarter, adjusted EBITDA totaled $457 million, a 12 percent increase over second quarter 2014 adjusted EBITDA of $408 million. See page A-8 for the adjusted EBITDA calculation.
At quarter-end, total debt was $3,917 million and cash balances totaled $140 million, compared to $3,781 million in debt and $104 million of cash at year-end 2014.
To date in 2015, the company has recycled more than $750 million of capital, including the sale of two EDITION hotels and the redemption of a preferred equity ownership interest.
Weighted average fully diluted shares outstanding used to calculate diluted EPS totaled 277.3 million in the 2015 second quarter, compared to 298.7 million in the year-ago quarter.
The company repurchased 9.1 million shares of common stock in the second quarter at a cost of $714 million. To date in 2015, the company has repurchased 17.3 million shares for $1.35 billion.
For the 2015 third quarter, the company expects comparable systemwide RevPAR on a constant dollar basis will increase 4 to 6 percent in North America, 3 to 5 percent outside North America and 4 to 6 percent worldwide. Third quarter RevPAR growth should moderate from the second quarter as a result of the unfavorable year-over-year holiday shifts.
For the 2015 fourth quarter, the company expects comparable systemwide RevPAR on a constant dollar basis will increase 5 to 7 percent in North America, 4 to 6 percent outside North America and 5 to 7 percent worldwide.
For full year 2015, the company expects comparable systemwide RevPAR on a constant dollar basis will increase 5.5 to 6.5 percent in North America, 4.5 to 5.5 percent outside North America and 5.5 to 6.5 percent worldwide.
The company anticipates gross room additions of approximately 8 percent, or 7 percent, net, worldwide for the full year 2015, including the 9,600 rooms from the recently completed acquisition of the Delta brand.
The company assumes full year fee revenue could total $1,890 million to $1,910 million, growth of 10 to 11 percent over 2014 fee revenue of $1,719 million. Compared to the company’s prior 2015 fee estimate, the current forecast assumes higher unfavorable foreign exchange, as well as more modest incentive management fees in Hong Kong and South Korea. The company anticipates incentive management fees alone will increase at a low teens rate for full year 2015.
The company estimates depreciation, amortization, and other expenses for full year 2015 will total approximately $140 million, reflecting lower depreciation expense related to assets held for sale and a refinement of the Protea and Delta purchase price allocation estimates.
For 2015, the company anticipates general, administrative and other expenses will total $630 million to $640 million, a 3 to 4 percent decline compared to 2014 expenses of $659 million. Compared to the company’s prior estimate of 2015 general and administrative costs, the current estimate assumes lower legal expenses and lower net development costs, partially offset by approximately $10 million of transition and transaction costs associated with the Delta acquisition.
Given these assumptions, 2015 diluted EPS could total $3.10 to $3.18, a 22 to 25 percent increase year-over-year. This full year EPS outlook includes the $0.09 gain on the redemption of a preferred equity ownership interest, $0.04 of losses on the expected disposition of real estate and full year Delta transition and transaction costs of approximately $0.02. These items were not included in the company’s April 29 forecast.
|Third Quarter 2015||Full Year 2015|
|Total fee revenue||$470 million to $480 million||$1,890 million to $1,910 million|
|Owned, leased, and other revenue, net of direct expenses||$50 million to $55 million||$250 million to $255 million|
|Depreciation, amortization, and other expenses||Approx. $35 million||Approx. $140 million|
|General, administrative, and other expenses||Approx. $165 million||$630 million to $640 million|
|Operating income||$320 million to $335 million||$1,360 million to $1,395 million|
|Gains and other income, net||Approx. $0 million||Approx. $20 million|
|Net interest expense1||Approx. $35 million||Approx. $135 million|
|Equity in earnings (losses)||Approx. $0 million||Approx. $5 million|
|Earnings per share||$0.72 to $0.76||$3.10 to $3.18|
|Tax rate||32.1 percent|
1Net of interest income
The company expects investment spending in 2015 will total approximately $600 million to $800 million, including approximately $140 million for maintenance capital and approximately $135 million for the Delta transaction. 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, at least $2.0 billion could be returned to shareholders through share repurchases and dividends.
Based upon the assumptions above, the company expects full year 2015 adjusted EBITDA will total $1,721 million to $1,756 million, a 13 to 15 percent increase over the 2014 full year adjusted EBITDA of $1,524 million. See page A-9 for the adjusted EBITDA calculation.
Marriott International, Inc. (NASDAQ: MAR) will conduct its quarterly earnings review for the investment community and news media on Thursday, July 30, 2015 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 30, 2016.
The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 66506287. A telephone replay of the conference call will be available from 1 p.m. ET, Thursday, July 30, 2015 until 8 p.m. ET, Thursday, August 6, 2015. To access the replay, call 404-537-3406. The conference ID for the recording is 66506287.