- Third quarter diluted earnings per share (EPS) totaled $0.22, a 47 percent increase over prior year adjusted results,
- Total fee revenue increased 9 percent to $253 million as a result of strong revenue per available room (REVPAR) and unit growth. Incentive fees climbed 24 percent,
- Worldwide systemwide comparable REVPAR rose 8.2 percent using constant dollars. Average daily rate rose 1.8 percent using constant dollars,
- The company’s worldwide pipeline of hotels under construction, awaiting conversion or approved for development totaled nearly 95,000 rooms, including over 33,000 rooms outside North America,
- Over 5,000 rooms opened during the third quarter, including nearly 2,000 rooms in international markets.
Marriott International, Inc. (MAR) has reported third quarter 2010 results, exceeding prior year results and at the high end of the company’s expectations.
THIRD QUARTER 2010 RESULTS
Third quarter 2010 net income totaled $83 million, a 57 percent increase compared to third quarter 2009 adjusted net income. Diluted EPS totaled $0.22, a 47 percent increase from adjusted diluted EPS in the year-ago quarter. On July 14, 2010, the company forecasted third quarter diluted EPS of $0.18 to $0.22.
Adjusted results for the 2009 third quarter exclude $8 million pretax ($4 million after-tax and $0.01 per diluted share) of restructuring costs and other charges, as well as $752 million pretax ($502 million after-tax and $1.41 per diluted share) of impairment charges related to the Timeshare segment. Adjusted results for 2009 third quarter also exclude the $13 million ($0.03 per diluted share) impact of non-cash charges in the provision for income taxes.
Reported net income totaled $83 million in the third quarter of 2010 compared to the reported loss of $466 million in the year-ago quarter. Reported diluted EPS was $0.22 in the third quarter of 2010 compared to reported diluted losses per share of $1.31 in the third quarter of 2009.
J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, said, “We are having an outstanding year. Corporate and leisure demand continues to strengthen, and we are leading the U.S. industry in pushing retail price increases. For the Marriott Hotels and Resorts brand in North America, nearly 90 percent of hotels raised corporate retail rates in the quarter and, overall, such retail rates rose 9 percent.
“In the third quarter, revenue per available room at North American systemwide hotels rose 7.2 percent year-over-year and average daily rates rose nearly 2 percent. International systemwide hotels showed tremendous strength, with REVPAR up 12 percent in the quarter on a constant dollar basis. Our Asia Pacific region is leading the way with REVPAR up over 20 percent. China was especially strong with our hotels benefiting from favorable demand, strong brands and outstanding locations.
“While U.S. supply growth continues to moderate, we are adding hotels to our portfolio. During the third quarter, we opened over 5,000 new rooms, and we have nearly 95,000 rooms in our worldwide development pipeline at quarter-end, including the stunning 3,000 room Cosmopolitan Hotel in Las Vegas – our first hotel on the Strip – which will open in December as part of The Autograph Collection. Our pipeline also includes almost 7,000 rooms to be converted to our brands.
“With substantial unit growth, improving REVPAR and continued focus on the bottom line, our strong cash flow has enabled us to reduce our debt ahead of schedule. Our adjusted net debt has declined by almost $1.5 billion since the end of 2008. We are pleased that Standard & Poor’s upgraded our bond rating to BBB last week.
“We expect 2011 to be even better than 2010 as demand and pricing continue to strengthen. We are currently forecasting 2011 systemwide worldwide REVPAR to increase 6 to 8 percent. We also expect to open 25,000 to 30,000 rooms worldwide in 2011.”
For the 2010 third quarter, REVPAR for worldwide comparable systemwide properties increased 8.2 percent (a 7.5 percent increase using actual dollars).
International comparable systemwide REVPAR rose 12.0 percent (an 8.5 percent increase using actual dollars), including a 1.6 percent increase in average daily rate (a 1.6 percent decrease using actual dollars) in the third quarter of 2010.
In North America, comparable systemwide REVPAR increased 7.2 percent in the third quarter of 2010, including a 1.7 percent increase in average daily rate. REVPAR for comparable systemwide North American full-service and luxury hotels (including Marriott Hotels & Resorts, The Ritz-Carlton and Renaissance Hotels) increased 7.3 percent with a 2.6 percent increase in average daily rate. The company estimates that excluding the impact of the calendar shift of Rosh Hashanah from the 2009 fiscal fourth quarter to the 2010 fiscal third quarter, REVPAR for comparable systemwide North American full-service and luxury hotels would have increased nearly 8 percent.
Marriott added 32 new properties (5,056 rooms) to its worldwide lodging portfolio in the 2010 third quarter, including the Renaissance Tianjin Lakeview, the Ritz-Carlton Shanghai Pudong and the 457-room Courtyard Shanghai Puxi. Three properties (667 rooms) exited the system during the quarter. At quarter-end, the company’s lodging group encompassed 3,518 properties and timeshare resorts for a total of over 611,000 rooms.
The company’s worldwide pipeline of hotels under construction, awaiting conversion or approved for development totaled almost 575 properties with nearly 95,000 rooms at quarter-end.
MARRIOTT REVENUES totaled over $2.6 billion in the 2010 third quarter compared to approximately $2.5 billion for the third quarter of 2009. Total fee revenue rose 9 percent to $253 million reflecting higher REVPAR and fees from new hotels. Third quarter incentive management fees alone increased 24 percent to $21 million. In the third quarter, 23 percent of company-managed hotels earned incentive management fees compared to 20 percent in the year-ago quarter. Incentive management fees largely came from hotels outside of North America in both the 2010 and 2009 quarters.
Worldwide comparable company-operated house profit margins increased 90 basis points in the third quarter reflecting higher occupancy, rate increases and strong productivity. House profit margins for comparable company-operated properties outside North America increased 170 basis points and North American comparable company-operated house profit margins increased 30 basis points from the year-ago quarter. Excluding the impact of cancellation and attrition fees in the 2009 quarter, North American comparable company-operated house profit margins increased 60 basis points year-over-year.
Owned, leased, corporate housing and other revenue, net of direct expenses, declined $5 million in the 2010 third quarter, to $7 million, largely due to the impact of a $6 million cancellation fee recorded in the 2009 third quarter.
The company launched Marriott Vacation Club Destinations, a new North American timeshare points program, in June and focused its efforts on educating existing customers about the benefits of the new product. The program allows customers to purchase timeshare in smaller increments than the traditional one-week product and allows greater flexibility of use. Feedback from owners has been favorable. In the third quarter alone, 22,000 existing owners joined the points program, exceeding the company’s expectations, and many of those owners purchased additional product. In fact, contract sales to existing owners increased 27 percent in the third quarter. With fewer sales to new customers year-over-year, third quarter adjusted Timeshare segment contract sales decreased 6 percent to $165 million (excluding a $1 million allowance for fractional contract cancellations recorded in the quarter). In the prior year’s quarter, Timeshare segment adjusted contract sales totaled $176 million (excluding a $24 million allowance for fractional and residential contract cancellations).
In the third quarter, Timeshare sales and services revenue totaled $275 million and, net of expenses, totaled $56 million for the quarter. Adjusting for the Timeshare impairment and restructuring costs and other charges, as well as the impact of consolidating securitized loans had that occurred at the beginning of 2009 rather than 2010, third quarter 2009 timeshare sales and services revenue would have totaled $290 million and, net of direct expenses, would have totaled $45 million. These adjustments for the 2009 quarter are shown on page A-11.
Third quarter 2010 Timeshare sales and services revenue, net of expense, benefited from lower marketing and sales costs, price increases year-over-year, and a $15 million favorable adjustment to the Marriott Rewards liability resulting from the lower than projected cost of Marriott Rewards redemptions. Results were reduced by $6 million of incremental program costs and $11 million of deferred profit associated with lower reportability of contract sales, both related to the new points-based program.
Timeshare segment results include Timeshare sales and services revenue, net of direct expenses, as well as base management fees, equity in earnings (losses), gains and other income, noncontrolling interest, interest expense and general, administrative and other expenses associated with the timeshare business. Timeshare segment results for the 2010 third quarter totaled $37 million as shown on page A-9. In the prior year quarter, adjusted Timeshare segment results would have totaled $24 million, adjusting for the Timeshare impairment and restructuring costs and other charges, as well as the impact of consolidating securitized loans had that occurred at the beginning of 2009 rather than 2010, as shown on page A-11. Timeshare segment results for the 2010 third quarter included $12 million of interest expense related to the consolidation of securitized Timeshare notes. Adjusted Timeshare segment results for the year-ago quarter included $17 million of interest expense related to the consolidation of securitized Timeshare notes.
GENERAL, ADMINISTRATIVE and OTHER expenses for the 2010 third quarter increased 4 percent to $149 million, compared to adjusted expenses of $143 million in the year-ago quarter, and included higher incentive compensation and legal costs, partially offset by lower deferred compensation expenses and the favorable reversal of an accrual related to a tax settlement on a European asset.
GAINS (LOSSES) AND OTHER INCOME totaled $3 million, primarily reflecting gains on the sale of real estate. The prior year’s third quarter losses totaled $1 million and included a $5 million impairment charge on an investment partially offset by $3 million of gains on the sale of real estate and $1 million of income from cost method investments.
INTEREST EXPENSE increased to $41 million in the third quarter primarily due to $12 million of interest expense related to the consolidation of debt associated with securitized Timeshare notes, lower capitalized interest and higher interest expense associated with the company’s deferred compensation plan, partially offset by the impact of lower debt balances and lower interest rates. Adjusting for the impact of consolidating securitized loans had that occurred at the beginning of 2009 rather than 2010, third quarter 2009 interest expense would have been $44 million.
EQUITY IN (LOSSES) totaled a $5 million loss in the quarter compared to an $11 million adjusted loss in the year-ago quarter. The $6 million improvement in results primarily reflected lower losses in two joint ventures, as well as the favorable impact of the impairment of one investment in the year ago quarter.
Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)
EBITDA totaled $220 million in the 2010 third quarter. In the 2009 third quarter, adjusted EBITDA totaled $163 million. If the consolidation of securitized Timeshare notes had occurred at the beginning of 2009, adjusted EBITDA in the 2009 third quarter would have totaled $195 million.
At the end of the third quarter 2010, total debt was $2,726 million and cash balances totaled $223 million, compared to $2,298 million in debt and $115 million of cash at year-end 2009. Adjusting for the debt associated with securitized Timeshare mortgage notes now required to be consolidated under new accounting rules, adjusted total debt, net of cash, totaled $1,591 million, a decline of nearly $600 million since year-end 2009.
At the end of the 2010 third quarter, Marriott did not have any borrowings outstanding under its $2.4 billion revolving bank credit facility.
Weighted average fully diluted shares outstanding used to calculate diluted EPS totaled 378.1 million in the 2010 third quarter compared to weighted average fully diluted shares outstanding of 367.5 million used to calculate adjusted diluted EPS in the year-ago quarter.
The remaining share repurchase authorization, as of September 10, 2010, totaled 21.3 million shares.
FOURTH QUARTER 2010 OUTLOOK
For the fourth quarter, the company assumes comparable systemwide REVPAR on a constant dollar basis will increase 6 to 8 percent in North America, 7 to 9 percent outside North America and 6 to 8 percent worldwide.
The company assumes fourth quarter 2010 Timeshare contract sales will total $190 million to $200 million and Timeshare sales and services revenue, net of direct expenses, will total approximately $45 million to $50 million. With these assumptions, Timeshare segment results for the fourth quarter, including interest expense associated with securitized notes, are expected to total $40 million to $45 million, including an approximately $20 million gain on the sale of real estate.
The company expects to open about 30,000 rooms in 2010.
The company estimates that, on a full-year basis, one point of worldwide systemwide REVPAR impacts total fees by approximately $15 million pretax and owned, leased, corporate housing and other revenue, net of direct expense, by approximately $5 million pretax.
The company expects investment spending in 2010 will total approximately $500 million, including $50 million for maintenance capital spending and $200 million of other capital expenditures (including property acquisitions). Investment spending will also include new mezzanine financing and mortgage loans, contract acquisition costs, and equity and other investments.
Based upon the assumptions above, full year 2010 EBITDA is expected to total $1,050 million to $1,065 million, an 8 to 9 percent increase over the prior year’s adjusted EBITDA including the impact of consolidating securitized loans had that occurred at the beginning of 2009 rather than 2010. Adjusted EBITDA for full year 2009 totaled $974 million and is shown on page A-15.
For the full year 2011, the company expects the business climate, particularly the pricing environment, to continue to improve. The company assumes full year 2011 systemwide REVPAR on a constant dollar basis will increase 6 to 8 percent in North America, outside North America and on a worldwide basis.
The company expects to open 25,000 to 30,000 rooms in 2011 as most hotels expected to open are already under construction or undergoing conversion from other brands. Given these assumptions, full year 2011 fee revenue could total $1,290 million to $1,330 million and owned, leased, corporate housing and other revenue, net of direct expense, could increase 5 to 15 percent year-over-year.
The company expects 2011 Timeshare contract sales to be in line with 2010 levels.
The company expects its 2011 general and administrative costs to increase 3 to 5 percent reflecting increased spending for brand initiatives and higher compensation.
Marriott International, Inc. (MAR) will conduct its quarterly earnings review for the investment community and news media on Thursday, October 7, 2010 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 7, 2011.
The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 93873764. A telephone replay of the conference call will be available from 1 p.m. ET, Thursday, October 7, 2010 until 8 p.m. ET, Thursday, October 14, 2010. To access the replay, call 706-645-9291. The reservation number for the recording is 93873764.
All references to net income or net loss reflect net income or net loss attributable to Marriott. All references to EPS or diluted losses per share, unless otherwise noted, reflect EPS or diluted losses per share attributable to Marriott shareholders.
Note: This press release and accompanying schedules contain “forward-looking statements” within the meaning of federal securities laws, including REVPAR, profit margin and earnings trends, estimates and assumptions; statements concerning the number of lodging properties we expect to add in the future; our expectations about investment spending and share repurchases; and similar statements concerning anticipated future events and expectations that are not historical facts. We caution you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including the continuation and pace of the economic recovery; supply and demand changes for hotel rooms, corporate housing and our Timeshare segment products; competitive conditions in the lodging industry; relationships with clients and property owners; the availability of capital to finance hotel growth and refurbishment; and other risk factors that we identify in our most recent quarterly report on Form 10-Q; any of which could cause actual results to differ materially from the expectations we express or imply here. These statements are made as of October 6, 2010, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
MARRIOTT INTERNATIONAL, INC. (MAR) is a leading lodging company with more than 3,500 lodging properties in 70 countries and territories. Marriott International operates and franchises hotels under the Marriott, JW Marriott, The Ritz-Carlton, The Autograph Collection, Renaissance, Residence Inn, Courtyard, TownePlace Suites, Fairfield Inn, SpringHill Suites and Bulgari brand names; develops and operates vacation ownership resorts under the Marriott Vacation Club, The Ritz-Carlton Destination Club, and Grand Residences by Marriott brands; licenses and manages whole-ownership residential brands, including The Ritz-Carlton Residences, JW Marriott Residences and Marriott Residences; operates Marriott Executive Apartments; provides furnished corporate housing through its Marriott ExecuStay division; and operates conference centers. The company is headquartered in Bethesda, Maryland, USA, and had approximately 137,000 employees at 2009 year-end. It is recognized by FORTUNE(R) as one of the best companies to work for, and by Newsweek as one of the greenest big companies in America. In fiscal year 2009, Marriott International reported sales from continuing operations of nearly $11 billion. For more information or reservations and, please visit our web site at www.marriott.com, and for the complete financial tables accompanying this release and the latest company news, visit www.marriottnewscenter.com
SOURCE: Marriott International