Marriott Reports Q2 2013 Net Income of $179 M, Systemwide RevPAR Up 4.7%
August 1, 2013 1:46pm
View the full press release with supporting tables.
SECOND QUARTER HIGHLIGHTS
Marriott International, Inc. (NYSE: MAR) today reported second quarter 2013 results. Due to the company's change in the fiscal calendar beginning in 2013, the second quarter of 2013 reflects the period from April 1, 2013 through June 30, 2013 (91 days) compared to the 2012 second quarter, which reflects the period from March 24, 2012 through June 15, 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.
Second quarter 2013 net income totaled $179 million, a 25 percent increase compared to second quarter 2012 net income. Diluted earnings per share (EPS) totaled $0.57, a 36 percent increase from diluted EPS in the year-ago quarter. On May 1, 2013, the company forecasted second quarter diluted EPS of $0.55 to $0.59.
Arne M. Sorenson, president and chief executive officer of Marriott International, said, "We were pleased with our second quarter results and believe they reflect the core strength of our business model. Modest economic growth combined with historically low supply increases in the industry helped us post 5.2 percent systemwide REVPAR growth in North America. Both business and leisure transient demand were strong in the quarter, more than offsetting weak short-term group business. As occupancy rates reach 2007 peak levels for many brands, room rates are moving higher, improving hotel profitability and incentive fees.
"Our brand portfolio is getting even better. We are excited about the rollout of our new "Travel Brilliantly" multi-year global marketing campaign for Marriott Hotels, our flagship brand, including a new logo, new designs and new service offerings. We're changing the look and feel of our hotels, offering style, technology and service for the next generation of travelers. We've launched our interactive and participatory "Innovation Lab" that will help us to do just that, allowing us to rapidly prototype new ideas and concepts with instant feedback, ultimately increasing speed to market.
"Earlier this year, we announced that we would be importing our popular lifestyle brand, AC Hotels by Marriott, to the U.S. We also introduced MOXY, a new European economy-tier brand concept. We are extremely pleased with the owner and franchise interest in these brands.
"Our worldwide development pipeline increased again this quarter to more than 140,000 rooms under construction, awaiting conversion or approved for development, as new signings accelerated in international markets. In fact, nearly three-quarters of the increase in the pipeline came from international markets, particularly Asia.
"Our business continues to generate significant cash. Through the second quarter, we've returned $591 million to our shareholders through share repurchases and dividends, and we expect to return $800 million to $1 billion for the full year. Over the past three years, we have returned nearly $3.6 billion to our shareholders through share repurchases and dividends. The number of fully diluted shares has declined by over 15 percent in that time."
For the 2013 second quarter, REVPAR for worldwide comparable systemwide properties increased 4.7 percent (a 4.5 percent increase using actual dollars).
In North America, comparable systemwide REVPAR increased 5.2 percent in the second 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) increased 5.9 percent with a 4.1 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 4.7 percent in the second quarter with a 3.6 percent increase in average daily rate.
International comparable systemwide REVPAR rose 2.8 percent (a 1.7 percent increase using actual dollars).
Marriott added 43 new properties (6,203 rooms) to its worldwide lodging portfolio in the 2013 second quarter, including three Autograph Collection hotels in the United Kingdom - St. Ermin's Hotel, Threadneedles and the Glasshouse. Eighteen properties (3,225 rooms) exited the system during the quarter. At quarter-end, the company's lodging group encompassed 3,847 properties and timeshare resorts for a total of over 666,000 rooms.
The company's worldwide pipeline of hotels under construction, awaiting conversion or approved for development increased to nearly 850 properties with over 140,000 rooms at quarter-end.
MARRIOTT REVENUES totaled approximately $3.3 billion in the 2013 second quarter compared to revenues of nearly $2.8 billion for the second quarter of 2012. Base management and franchise fees totaled $343 million, a $57 million increase from the second quarter of 2012 of which the company estimates $24 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 $5 million of higher relicensing fees. Second quarter worldwide incentive management fees increased 14 percent to $64 million and included an approximately $1 million increase related to the change in the fiscal calendar. In the second quarter, 34 percent of worldwide company-managed hotels earned incentive management fees compared to 30 percent in the year-ago quarter.
Owned, leased, corporate housing and other revenue, net of direct expenses, totaled $51 million, compared to $61 million in the year-ago quarter. The decline largely reflects $4 million of expenses related to three international lease terminations, weaker operating results at several international leased properties, lower residential branding fees, and lower corporate housing revenue, net of expenses, due to the sale of the corporate housing business in the second quarter of 2012, partially offset by an estimated $6 million year-over-year increase related to the change in fiscal calendar. Additionally, in the second quarter of 2012, the company received a $2 million business interruption payment related to the 2011 tsunami in Japan.
On May 1, the company estimated second quarter owned, leased, corporate housing and other revenue, net of direct expenses would total $40 million to $45 million for the second quarter. Actual results in the quarter exceeded those expectations largely due to higher than expected termination fees.
GENERAL, ADMINISTRATIVE and OTHER expenses for the 2013 second quarter increased $19 million to $179 million. Second quarter 2013 expenses reflected an approximately $11 million increase related to the change in fiscal calendar. The remaining $8 million increase included routine increases in compensation and other expenses, branding and service initiatives and growth in international markets, as well as a $5 million performance cure payment related to one international hotel, partially offset by lower guarantee reserves.
On May 1, the company estimated general and administrative expenses for the second quarter would total $165 million to $170 million. Actual expenses in the quarter were higher than expected largely due to the $5 million impairment of deferred contract acquisition costs and the $5 million performance cure payment related to one international hotel.
GAINS AND OTHER INCOME totaled $10 million in the quarter. The company recorded an $8 million gain on the sale of an investment in equity securities, which was not included in the May 1 second quarter guidance.
INTEREST EXPENSE totaled $29 million in the second quarter, compared to interest expense of $34 million in the year-ago quarter. The decline in interest expense largely reflects lower outstanding senior debt and higher capitalized interest. Capitalized interest totaled $8 million in the quarter, compared to $6 million in the year-ago quarter.
EQUITY IN EARNINGS (LOSSES) totaled a $2 million loss in the quarter compared to an $8 million loss in the year-ago quarter. Results in the 2013 second quarter largely reflected a $4 million impairment charge associated with a joint venture, which was not included in the company's May 1 second quarter guidance. Results in the 2012 second quarter largely reflected an impairment charge of $8 million related to certain underlying residential properties in one joint venture.
Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)
EBITDA totaled $329 million in the 2013 second quarter, a 14 percent increase over 2012 second quarter EBITDA of $289 million. See page A-8 for the EBITDA calculation.
At the end of the second quarter, total debt was $3,087 million and cash balances totaled $108 million, compared to $2,935 million in debt and $88 million of cash at year-end 2012.
After quarter-end, the company increased its credit facility from $1.75 billion to $2.0 billion and extended the facility's expiration to July 2018. Other material terms were unchanged.
Weighted average fully diluted shares outstanding used to calculate diluted EPS totaled 314.0 million in the 2013 second quarter, compared to 338.0 million in the year-ago quarter.
The company repurchased 7.0 million shares of common stock in the second quarter at a cost of $288 million. Year-to-date through July 30, 2013, Marriott repurchased 12.9 million shares of its stock for $519 million. The remaining share authorization as of July 30, 2013, totaled 21.4 million shares.
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 third quarter of 2013 will include 92 days compared to 84 days in the 2012 third 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.
Third Quarter 2013
For the third quarter, the company expects comparable systemwide calendar REVPAR on a constant dollar basis will increase 4 to 6 percent in North America and 3 to 5 percent worldwide. Outside North America, comparable systemwide calendar REVPAR on a constant dollar basis could be flat to up 2 percent.
The company expects third quarter 2013 operating profit could total $215 million to $235 million compared to $213 million in the prior year quarter. The company's estimated third quarter operating profit reflects a roughly $26 million benefit from the change in the fiscal calendar. In the 2012 third quarter, the company recorded a $41 million pretax ($25 million after-tax and $0.08 per diluted share) gain on the sale of the equity interest in the Courtyard joint venture.
Full Year 2013
The company expects full year 2013 comparable systemwide REVPAR on a constant dollar basis will increase 4.5 to 6 percent in North America, 2 to 4 percent outside North America and 4 to 6 percent worldwide.
The company anticipates adding approximately 30,000 rooms worldwide for the full year 2013. The company also expects approximately 10,000 rooms will leave the system during the year.
The company assumes full year fee revenue could total $1,525 million to $1,555 million, growth of 7 to 10 percent over 2012 fee revenue of $1,420 million.
The company expects owned, leased, corporate housing and other revenue, net of expenses could total $150 million to $160 million in 2013, a 3 to 9 percent decline year-over-year. Expected results for 2013 reflect tougher year-over-year comparisons due to the London Olympics, 2013 renovations at some international leased hotels, lower residential branding fees, and $5 million of pre-opening expenses.
For 2013, the company anticipates general, administrative and other expenses will total $690 million to $700 million, an increase of 7 to 9 percent over 2012 expenses of $645 million reflecting routine increases in compensation and other expenses, branding and service initiatives, growth in international markets, $8 million of higher amortization and impairment of deferred contract acquisition costs, $5 million of higher performance cure payments and $3 million of lower guarantee reserve reversals.
Given these assumptions, 2013 diluted EPS could total $1.92 to $2.03, a 12 to 18 percent increase year-over-year. In 2012, the company recorded a $41 million pretax ($25 million after-tax and $0.08 per diluted share) gain on the sale of the equity interest in the Courtyard joint venture. Excluding that gain from 2012 diluted EPS, the company estimates 2013 diluted EPS could increase 17 to 24 percent year-over-year as shown on page A-11.
The company expects investment spending in 2013 will total approximately $600 million to $800 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 $800 million to $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 $1,160 million to $1,210 million. Excluding the $41 million Courtyard joint venture gain from 2012 EBITDA, the company expects 2013 EBITDA will increase 5 to 10 percent year-over-year as shown on page A-9.
Marriott International, Inc. (NYSE: MAR) will conduct its quarterly earnings review for the investment community and news media on Thursday, August 1, 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 August 1, 2014.
The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 93999747. A telephone replay of the conference call will be available from 1 p.m. ET, Thursday, August 1, 2013 until 8 p.m. ET, Thursday, August 8, 2013. To access the replay, call 404-537-3406. The conference ID for the recording is 93999747.
Note on forward-looking statements: 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; the number of lodging properties we expect to add to or remove from our system in the future; our expectations about investment spending; 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 those we identify below and other risk factors that we identify in our most recent quarterly report on Form 10-Q. Risks that could affect forward-looking statements in this press release include changes in market conditions; the continuation and pace of the economic recovery; supply and demand changes for hotel rooms; competitive conditions in the lodging industry; relationships with clients and property owners; and the availability of capital to finance hotel growth and refurbishment. Any of these factors could cause actual results to differ materially from the expectations we express or imply in this press release. We make these forward-looking statements as of July 31, 2013. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
q2 2013 results
Contact: Thomas Marder
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