Marriott International Reports Second Quarter 2018 Results

  • Marriott International
  • 08.07.18
Arne M. Sorenson, president and chief executive officer of Marriott International, said, “We were pleased with our performance in the quarter across the board.  Worldwide constant dollar RevPAR grew nearly 4 percent in the second quarter, with particularly strong transient demand in many markets outside North America. In North America, solid group business allowed us to drive higher room rates in the quarter.

HIGHLIGHTS
 
•Second quarter reported diluted EPS totaled $1.71, a 34 percent increase from prior year results. Second quarter adjusted diluted EPS totaled $1.73, a 56 percent increase over second quarter 2017 adjusted results.  Adjusted results exclude merger-related adjustments, cost reimbursement revenue, reimbursed expenses, and an adjustment to the Avendra gain;
 
•During the 2018 second quarter, EPS included $0.26 from gains on asset sales ($119 million pretax reflected in Gains and other income, net and Equity in earnings). During the 2017 second quarter, EPS included $0.04 from the gain on an asset sale ($24 million pretax reflected in Gains and other income, net);
 
•To date, the company has recycled nearly $1.8 billion of capital since the acquisition of Starwood Hotels & Resorts on September 23, 2016, including $423 million of capital recycling in the second quarter of 2018;
 
•Second quarter 2018 comparable systemwide constant dollar RevPAR rose 3.8 percent worldwide, 5.7 percent outside North America and 3.1 percent in North America;
 
•The company added a record 23,000 rooms during the second quarter, including roughly 2,900 rooms converted from competitor brands and approximately 10,900 rooms in international markets;
 
•At quarter-end, Marriott’s worldwide development pipeline increased to roughly 466,000 rooms, including approximately 41,500 rooms approved, but not yet subject to signed contracts;
 
•Second quarter reported net income totaled $610 million, a 25 percent increase from prior year results. Second quarter adjusted net income totaled $619 million, a 46 percent increase over prior year adjusted results;
 
•Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $939 million in the quarter, a 15 percent increase over second quarter 2017 adjusted EBITDA;
 
•Marriott repurchased 6.2 million shares of the company’s common stock for $850 million during the second quarter. Year-to-date through August 6, the company has repurchased 14.1 million shares for $1.9 billion.

 

Marriott International, Inc. reported second quarter 2018 results.
 
“Our owners opened more than 82,000 rooms over the last 12 months, yielding net rooms growth of 5.7 percent.  Over 40 percent of these gross room additions are located outside North America and more than one-third are in upper-upscale and luxury tiers.  Our development pipeline increased to roughly 466,000 rooms at quarter-end.
 
“We are excited to introduce one set of unified benefits across our three loyalty programs on August 18, creating an incredibly rich program in which members, on average, will earn 20 percent more points for every dollar spent.  Members will find it easier to redeem points, achieve elite status, and book stays across the entire portfolio on each of our websites and apps or by calling our customer engagement centers.  Our credit card partners, JPMorgan Chase and American Express, are offering new and refreshed co-branded credit cards in the U.S., providing valuable perks and more ways to earn points when using the cards for stays worldwide.
 
“Since we acquired Starwood, we have recycled capital totaling nearly $1.8 billion, exceeding our goal of recycling $1.5 billion by year-end 2018.   For full year 2018, we expect to return more than $3.1 billion to shareholders through share repurchases and dividends.  To date this year, we have already returned $2.2 billion to shareholders.”

Second Quarter 2018 Results
 

In the 2018 first quarter, the company adopted Accounting Standards Update 2014-09.  Please see the “Accounting Standards Update” section of this release for more information.
 
Marriott’s reported net income totaled $610 million in the 2018 second quarter, a 25 percent increase from 2017 second quarter reported net income of $489 million.  Reported diluted earnings per share (EPS) totaled $1.71 in the quarter, a 34 percent increase from reported diluted EPS of $1.28 in the year-ago quarter.
 
Second quarter 2018 adjusted net income totaled $619 million, a 46 percent increase over 2017 second quarter adjusted net income of $425 million.  Adjusted net income excludes merger-related adjustments, cost reimbursement revenue, reimbursed expenses, and an adjustment to the Avendra gain.  Adjusted diluted EPS in the second quarter totaled $1.73, a 56 percent increase from adjusted diluted EPS of $1.11 in the year-ago quarter.  See page A-3 for the calculation of adjusted results.
 
Base management and franchise fees totaled $775 million in the 2018 second quarter, a 12 percent increase over base management and franchise fees of $693 million in the year-ago quarter.  The year-over-year increase in these fees is primarily attributable to higher RevPAR, unit growth, and higher credit card branding fees.
 
Second quarter 2018 incentive management fees totaled $176 million, a 14 percent increase compared to incentive management fees of $155 million in the year-ago quarter.  The year-over-year increase was largely due to higher net house profit at properties in North America and the Asia Pacific region.
 
Owned, leased, and other revenue, net of direct expenses, totaled $89 million in the 2018 second quarter, compared to $98 million in the year-ago quarter.  The year-over-year decrease largely reflects the $21 million negative impact from hotels sold during or after the second quarter of 2017, including in the second quarter of 2018, partially offset by stronger results at a few owned and leased hotels in North America and Europe.  Results in the 2017 second quarter included $5 million of business interruption proceeds.
 
General, administrative, and other expenses for the 2018 second quarter totaled $217 million, compared to $234 million in the year-ago quarter.  The year-over-year $17 million decrease largely reflects integration-related general and administrative cost savings.
 
Gains and other income, net, totaled $114 million in the 2018 second quarter, reflecting $67 million of gains associated with the sale of two hotels in Fiji and two hotels in North America, as well as $42 million of gains associated with the sale of the company’s equity interests in joint ventures in the Europe, Asia Pacific, and Caribbean & Latin America regions.  Gains and other income, net, totaled $25 million in the 2017 second quarter, reflecting a $24 million gain on the sale of the Charlotte Marriott City Center.
 
Equity in earnings for the second quarter totaled $21 million compared to $12 million in the year-ago quarter.  The 2018 second quarter included a $10 million gain on the sale of a hotel in a North American joint venture.
 
Interest expense, net, totaled $79 million in the second quarter compared to $65 million in the year-ago quarter.  The increase was largely due to higher interest rates and debt balances, and lower interest income.
 
The provision for income taxes totaled $186 million in the second quarter, a 23.3 percent effective tax rate, compared to $227 million in the year-ago quarter, a 31.7 percent effective tax rate.  The lower effective rate in the 2018 second quarter largely reflects the effects of the U.S. Tax Cuts and Jobs Act of 2017.
 
For the second quarter, adjusted EBITDA totaled $939 million, a 15 percent increase over second quarter 2017 adjusted EBITDA of $820 million.  Compared to the prior year, adjusted EBITDA for the second quarter of 2018 reflects the $17 million negative impact from sold hotels.  See page A-11 for the adjusted EBITDA calculations.
 
Second Quarter 2018 Results Compared to May 8, 2018 Guidance
 

On May 8, 2018, the company estimated gross fee revenues for the second quarter would be $935 million to $945 million.  Actual gross fee revenues of $951 million in the quarter were higher than estimated, largely reflecting greater than expected incentive fees at properties in North America and Europe, and better than expected fees from franchised properties.
 
Marriott estimated owned, leased, and other revenue, net of direct expenses, for the second quarter would total approximately $80 million.  Actual results of $89 million in the quarter were higher than estimated, largely due to higher than expected termination fees.
 
The company estimated general, administrative, and other expenses for the second quarter would total approximately $250 million.  Actual expenses of $217 million in the quarter were lower than expected largely due to lower than anticipated incremental profit-sharing contributions and, to a lesser extent, timing.
 
The company estimated gains and other income for the second quarter would total approximately $10 million.  Actual gains of $114 million in the quarter were higher than expected, due to asset sales.
 
The company estimated equity in earnings for the second quarter would total approximately $10 million.  Actual equity in earnings of $21 million in the quarter were higher than expected, reflecting a $10 million gain on the sale of a hotel in a North American joint venture.
 
The company estimated adjusted EBITDA for the second quarter would total $880 million to $890 million.  Actual adjusted EBITDA of $939 million was higher than expected due to strong fee revenue, better than expected owned, leased and other revenues, net of direct expenses, and lower than expected general, administrative, and other expenses.
Selected Performance Information
 

The company added 142 new properties (23,287 rooms) to its worldwide lodging portfolio during the 2018 second quarter, including the Bulgari Hotel Shanghai in China, The Bodrum EDITION in Turkey and the Sheraton Bamako Hotel, the company’s first hotel in Mali.  Sixteen properties (3,117 rooms) exited the system during the quarter.  At quarter-end, Marriott’s lodging system encompassed 6,717 properties and timeshare resorts with nearly 1,287,000 rooms.
 
At quarter-end, the company’s worldwide development pipeline totaled 2,740 properties with roughly 466,000 rooms, including 1,148 properties with nearly 213,500 rooms under construction and 253 properties with approximately 41,500 rooms approved for development, but not yet subject to signed contracts.
 
In the 2018 second quarter, worldwide comparable systemwide constant dollar RevPAR increased 3.8 percent (a 5.1 percent increase using actual dollars).  North American comparable systemwide constant dollar RevPAR increased 3.1 percent (a 3.4 percent increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 5.7 percent (a 10.1 percent increase using actual dollars) for the same period.
 
Worldwide comparable company-operated house profit margins increased 60 basis points in the second quarter, largely due to solid cost controls and synergies from the Starwood acquisition.  House profit margins for comparable company-operated properties outside North America rose 50 basis points and North American comparable company-operated house profit margins increased 60 basis points in the second quarter.

For more information, click here


Related Articles
want to read more articles like this?

want to read more articles like this?

Sign up to receive our twice-a-month Watercooler and Siegel Sez Newsletters and never miss another article or news story.