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Marriott International Reports Third Quarter 2013 Results

November 1, 2013 Financial No Comments Email Email

• Third quarter diluted EPS totaled $0.52, an 18 percent increase over prior year results;

• North American comparable company-operated REVPAR rose 5.5 percent in the third quarter with average daily rate up 4.4 percent;

Legian Beach Hotel-httpwww.legianbeachbali• On a constant dollar basis, worldwide comparable systemwide REVPAR rose 4.8 percent in the third quarter, including a 3.4 percent increase in average daily rate.  Worldwide occupancy reached nearly 75 percent in the quarter, the highest in the last six years;

• At the end of the third quarter, the company’s worldwide pipeline of hotels under signed contracts increased to over 144,000 rooms compared to nearly 141,000 rooms in the second quarter of 2013.  In addition, the company has more than 31,000 rooms approved, but not yet subject to signed contracts, compared to over 15,000 rooms in the second quarter of 2013;

• Nearly 6,600 rooms were added during the quarter, including over 2,500 rooms converted from competitor brands and roughly 2,100 rooms in international markets;

• Marriott repurchased 3.2 million shares of the company’s common stock for $129 million during the third quarter.  Year-to-date through October 29, 2013, the company repurchased 16.6 million shares for $669 million.

BETHESDA, Md. – October 30, 2013 – Marriott International, Inc. (NASDAQ: MAR) today reported third quarter 2013 results.  Due to the company’s change in the fiscal calendar beginning in 2013, the third quarter of 2013 reflects the period from July 1, 2013 through September 30, 2013 (92 days) compared to the 2012 third quarter, which reflects the period from June 16, 2012 through September 7, 2012 (84 days).  Prior year results have not been restated for the change in fiscal calendar, although revenue per available room (REVPAR), occupancy and average daily rate statistics are reported for calendar quarters for purposes of comparability.

Third quarter 2013 net income totaled $160 million, a 12 percent increase compared to third quarter 2012 net income.  Diluted earnings per share (EPS) totaled $0.52, an 18 percent increase from diluted EPS in the year-ago quarter.  On July 31, 2013, the company forecasted third quarter diluted EPS of $0.42 to $0.46.

Arne M. Sorenson, president and chief executive officer of Marriott International, said, “We had a solid quarter with worldwide REVPAR up nearly 5 percent year-over-year.  Short-term group business picked up in North America and occupancy rates reached nearly 75 percent worldwide.  Room rates moved higher, in part due to an improving mix of business, contributing about three-quarters of the REVPAR increase in the quarter, and the number of company-operated and franchised rooms in our portfolio rose 4 percent year-over-year.

“Owner demand for our brands continues to be robust.  Our development pipeline increased for the fifth straight quarter and we’re on track to sign a record number of rooms in 2013.  In Asia, we expect to open, on average, one hotel every eight days through 2016.  In the fourth quarter alone, we expect to open the JW Marriott Hotel New Delhi Aerocity, the Tokyo Marriott, The Ritz-Carlton Chengdu, The Ritz-Carlton Tianjin and The Ritz-Carlton Bangalore.

“In the five months since we announced that we were importing the AC Hotels brand to the Americas, we already have 15 AC Hotels signed or approved for development and are in discussions for a few dozen more.  In India, where we are rolling out our Fairfield brand specifically tailored for the local market, developers were so impressed with the brand that we had twelve signed contracts before the brand launched.  The first of these Fairfields opened just a few weeks ago in Bangalore to great reviews.

“For 2014, we expect North America systemwide REVPAR and worldwide systemwide REVPAR to increase 4 to 6 percent.  Group revenue booking pace for 2014 North American group business improved in the third quarter and is now up over 4 percent compared to up 2 percent a quarter ago.  Group revenue booked in the 2013 third quarter for calendar 2014 was up 14 percent compared to group revenue booked for calendar 2013 in the year-ago quarter.  Given our strong development pipeline, unit growth should accelerate in 2014 as our global system of rooms is expected to expand by approximately 5 percent gross, or 3 1/2 to 4 percent net.”

For the 2013 third quarter, REVPAR for worldwide comparable systemwide properties increased 4.8 percent (a 4.7 percent increase using actual dollars).

In North America, comparable systemwide REVPAR increased 5.2 percent in the third quarter of 2013, including a 3.9 percent increase in average daily rate.  REVPAR for comparable systemwide North American full-service and luxury hotels (including Marriott Hotels, The Ritz-Carlton, Renaissance Hotels and Autograph Collection Hotels) increased 5.6 percent with a 4.5 percent increase 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 4.9 percent in the third quarter with a 3.5 percent increase in average daily rate.

International comparable systemwide REVPAR rose 3.4 percent (a 2.9 percent increase using actual dollars).

Marriott added 44 new properties (6,580 rooms) to its worldwide lodging portfolio in the 2013 third quarter, including the London EDITION, The Prince Sakura Tower Tokyo, an Autograph Collection hotel and the Courtyard Aberdeen Airport in Scotland, which features the new European Courtyard design.  Eight properties (2,220 rooms) exited the system during the quarter.  At quarter-end, the company’s lodging group encompassed 3,883 properties and timeshare resorts for a total of over 670,000 rooms.

Beginning in the third quarter of 2013, the company changed its methodology to measure its development pipeline conforming to new STR (Smith Travel Research) guidelines designed to improve comparability across companies and more accurately measure industry supply growth.  Under the new approach, the company’s development pipeline will include all worldwide rooms with signed contracts, including rooms pending conversion to one of the company’s brands.  Using this new approach, the company’s development pipeline increased to over 850 properties with over 144,000 rooms at quarter-end compared to approximately 830 properties and nearly 141,000 rooms at the end of the 2013 second quarter.  In addition, while not included in the development pipeline, the company also has more than 31,000 rooms approved for development that are not yet subject to signed agreements as of the end of the third quarter 2013 compared to over 15,000 such rooms as of the end of the second quarter 2013.  See page A-4 for further discussion on this change in methodology.

MARRIOTT REVENUES totaled nearly $3.2 billion in the 2013 third quarter compared to revenues of over $2.7 billion for the third quarter of 2012.  Base management and franchise fees totaled $325 million, a $42 million increase from the third quarter of 2012 of which the company estimates $25 million relates to the change in the fiscal calendar.  In addition to the calendar change impact, the year-over-year increase reflects higher REVPAR at existing hotels, fees from new hotels and higher relicensing fees.  In the year-ago quarter, the company recognized $7 million of deferred base management fees related to the sale of the Courtyard joint venture.

Third quarter worldwide incentive management fees increased $17 million to $53 million and included an approximately $12 million increase related to the change in the fiscal calendar.  Incentive management fees improved in New York and Boston, were flat in many international markets and declined in Washington, DC and Egypt.  In the third quarter, 32 percent of worldwide company-managed hotels earned incentive management fees compared to 28 percent in the year-ago quarter.

Owned, leased, corporate housing and other revenue, net of direct expenses, totaled $34 million, compared to $26 million in the year-ago quarter.  The company estimates that approximately $2 million of the year-over-year increase relates to the change in the fiscal calendar.  The remaining $6 million increase largely reflected $7 million of termination fees, compared to $2 million in the prior year, and increased results at several leased hotels.  The increase was partially offset by $2 million of pre-opening costs largely related to two EDITION hotels and $3 million of lower results at a leased property in London due to last year’s Olympic Games.

On July 31, the company estimated third quarter owned, leased, corporate housing and other revenue, net of direct expenses would total approximately $20 million for the third quarter.  Actual results in the quarter exceeded those expectations largely due to $8 million of termination and branding fees, $6 million of which were expected in the fourth quarter, as well as better than expected performance at several leased hotels.

GENERAL, ADMINISTRATIVE and OTHER expenses for the 2013 third quarter increased $35 million to $167 million.  After taking into account approximately $12 million related to the change in the fiscal calendar, routine administrative costs grew roughly $8 million, primarily from typical increases in compensation and other expenses.

GAINS AND OTHER INCOME totaled $1 million compared to $36 million in the year-ago-quarter.  The 2012 third quarter largely reflected a $41 million gain related to the sale of the Courtyard joint venture partially offset by a $7 million impairment charge on an investment.

Provision for Income Taxes
Compared to expectations, the provision for income taxes in the third quarter benefited from a slightly lower than anticipated tax rate, as well as a $7 million benefit largely related to true-ups of foreign tax provisions.

Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)
EBITDA totaled $289 million in the 2013 third quarter compared to $284 million in the year-ago quarter.  Excluding the $41 million Courtyard joint venture gain from 2012 third quarter, EBITDA increased 19 percent year-over-year as shown on page A-9.

BALANCE SHEET
At the end of the third quarter, total debt was $3,156 million and cash balances totaled $144 million, compared to $2,935 million in debt and $88 million of cash at year-end 2012.

At the end of the third quarter, the company issued $350 million of Series M Senior Notes due in 2020 with a 3.375 percent interest rate coupon.  The company expects to use the net proceeds for general corporate purposes.

COMMON STOCK
Weighted average fully diluted shares outstanding used to calculate diluted EPS totaled 309.5 million in the 2013 third quarter, compared to 329.3 million in the year-ago quarter.

The company repurchased 3.2 million shares of common stock in the third quarter at a cost of $129 million.  Year-to-date through October 29, 2013, Marriott repurchased 16.6 million shares of its stock for $669 million.  The remaining share authorization as of October 29, 2013, totaled 17.6 million shares.

OUTLOOK
The company now reports its results on a calendar basis, with 2013 quarters ending on March 31, June 30, September 30 and December 31.  The fourth quarter of 2013 will include 92 days compared to 112 days in the 2012 fourth quarter.  Prior year results will not be restated or reported on a pro forma basis for the change in fiscal calendar, although REVPAR statistics will be adjusted to calendar quarters for purposes of comparability.

For the 2013 fourth quarter, the company expects comparable systemwide calendar REVPAR on a constant dollar basis will increase 4.5 to 5.5 percent in North America, 1 to 2 percent outside North America and 3.5 to 4.5 percent worldwide.  This estimate of North American REVPAR growth in the fourth quarter reflects a roughly one percent REVPAR decline due to the U.S. government shutdown in October.

The company expects fourth quarter 2013 operating profit could total $235 million to $250 million compared to $309 million in the prior year quarter.  The company’s estimated fourth quarter operating profit reflects roughly $64 million of lower operating profit due to the change in the fiscal calendar.  In addition to the shorter fourth quarter, expectations reflect the impact of the government shutdown in Washington, DC, modest REVPAR growth in international markets and the unfavorable impact of $3 million of previously deferred fees recognized in the fourth quarter of 2012.

Compared to the company’s estimates for full year 2013 provided on July 31, estimates for owned, leased, corporate housing and other revenue, net of expenses increased as a result of better than expected performance at several owned and leased hotels in the third quarter.  The estimates for full-year general, administrative and other expenses increased from prior estimates largely due to higher development costs in the fourth quarter to drive new unit growth.

The company anticipates adding nearly 30,000 rooms worldwide for the full year 2013.  The company also expects approximately 10,000 rooms will leave the system during the year.

  Fourth Quarter 2013 Full Year 2013 
Total fee revenue $370 million to $380 million $1,525 million to $1,535 million
Owned, leased, corporate housing and other revenue, net of direct expenses  Approx. $40 million Approx. $161 million
General, administrative and other expenses  $170 million to $175 million $696 million to $701 million
Operating income  $235 million to $250 million $985 million to $1,000 million
Gains and other income  Approx. $1 million  Approx. $15 million
Net interest expense1  Approx. $25 million  Approx. $100 million
Equity in earnings (losses)  Approx. $0 million  Approx. $(2) million
Earnings per share $0.47 to $0.50 $1.98 to $2.01
Tax rate  31.1 percent

1Net of interest income

The company expects investment spending in 2013 will total approximately $600 million to $700 million, including approximately $100 million for maintenance capital spending.  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, approximately $1 billion could be returned to shareholders through share repurchases and dividends.

Based upon the assumptions above, the company expects full year 2013 EBITDA will total $1,173 million to $1,188 million.  Excluding the $41 million Courtyard joint venture gain from 2012 EBITDA, the company expects 2013 EBITDA will increase 6 to 8 percent year-over-year as shown on page A-10.

Marriott International, Inc. (NASDAQ: MAR) will conduct its quarterly earnings review for the investment community and news media on Thursday, October 31, 2013 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 October 31, 2014.

The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 55102037.  A telephone replay of the conference call will be available from 1 p.m. ET, Thursday, October 31, 2013 until 8 p.m. ET, Thursday, November 7, 2013.  To access the replay, call 404-537-3406.  The conference ID for the recording is 55102037.

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