News for the Hospitality Executive
Marriott Reports 2009 1st Qtr Loss of $23 from Continuing
Compared to Prior Year Income of $122 million
RevPAR Decline Almost 20% Worldwide
BETHESDA, Md., April 23, 2009 - Marriott International, Inc. ("Marriott") (NYSE: MAR) today reported first quarter 2009 adjusted income from continuing operations attributable to Marriott of $87 million, a 29 percent decline over the year-ago quarter, and adjusted diluted earnings per share ("EPS") from continuing operations attributable to Marriott shareholders of $0.24, down 27 percent. The company's EPS guidance for the 2009 first quarter, disclosed on February 12, 2009, totaled $0.13 to $0.15.
Adjusted results for the 2009 first quarter exclude $129 million pretax ($84 million after-tax and $0.23 per diluted share) of restructuring costs and other charges resulting from the continued soft lodging and timeshare demand environment. Restructuring costs reflecting additional severance costs totaled $2 million pretax. Other charges totaled $127 million pretax and included charges against lodging and timeshare assets, and reserves for loan losses and security deposits. Of the total restructuring costs and other charges, cash payments are expected to be only $2 million. See the table on page A-9 of the accompanying schedules for the detail of these restructuring costs and other charges and their placement on the Consolidated Statements of Income.
Adjusted results for the 2009 first quarter also exclude $26 million of non-cash charges ($0.07 per diluted share) in the provision for income taxes primarily related to the treatment of funds received from certain foreign subsidiaries that is in ongoing discussions with the Internal Revenue Service ("IRS").
The reported loss from continuing operations attributable to Marriott was $23 million in the first quarter of 2009 compared to reported income from continuing operations attributable to Marriott of $122 million in the year-ago quarter. Reported diluted losses per share from continuing operations attributable to Marriott shareholders was $0.06 in the first quarter of 2009 compared to diluted EPS from continuing operations attributable to Marriott shareholders of $0.33 in the first quarter of 2008.
J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, said, "Not surprisingly, the lodging industry and Marriott International continue to feel the impact of the global economic downturn. At the same time, however, we are finding new ways of controlling costs and driving revenue.
"Despite an almost 20 percent decline in revenue per available room for our worldwide company-operated hotels, our teams performed incredibly well to limit house profit margin declines to 340 basis points, ahead of our expectations. Our strong brands continue to drive significant revenue premiums compared to their competitors. We've launched enhancements to our flagship Marriott Rewards program to enhance the loyalty of our most frequent customers even more. From Marriott.com to our travel partnership programs, we're making it easier for guests to choose and book our brands.
"Despite the downturn, we're moving ahead. The strength of our business model was apparent during the quarter, earning the company $256 million in total hotel management and franchise fees and generating $215 million in adjusted earnings before interest expense, taxes, depreciation and amortization. Adjusted general and administrative costs were reduced by 16 percent, and total debt, net of cash, declined by $152 million. In March, we completed a timeshare note sale, and we're still on track to open over 30,000 rooms in 2009. With lower costs, strong brands, an extensive global hotel development pipeline, and a solid balance sheet, Marriott is well positioned for long-term success."
In the 2009 first quarter (12-week period from January 3, 2009 to March 27, 2009), REVPAR for the company's comparable worldwide company-operated properties declined 19.6 percent (17.8 percent using constant dollars) and REVPAR for the company's worldwide comparable systemwide properties declined 17.3 percent (16.2 percent using constant dollars).
International comparable company-operated REVPAR declined 24.1 percent (17.0 percent using constant dollars), including a 13.4 percent decline in average daily rate (5.3 percent using constant dollars) in the first quarter of 2009.
In North America comparable company-operated REVPAR declined 18.0 percent and comparable systemwide REVPAR declined 16.2 percent. REVPAR at the company's comparable company-operated North American full-service and luxury hotels (including Marriott Hotels & Resorts, The Ritz-Carlton and Renaissance Hotels & Resorts) was down 17.0 percent driven by an 8.2 percent decline in average daily rate.
Marriott's 2009 fiscal first quarter began on January 3, 2009, while the prior year's first quarter included the New Year's holiday. For North American hotels, the first quarter of 2008 included the negative impact of the week preceding Easter, while, for 2009, the week preceding Easter was in the second quarter. If North American REVPAR for the 2009 first quarter was calculated for the twelve weeks beginning on December 27, 2008, REVPAR would have declined by an average of 21.0 percent across North American comparable company-operated hotels.
Marriott added 53 new properties (8,814 rooms) to its worldwide lodging portfolio in the 2009 first quarter, including a JW Marriott and a Ritz-Carlton in Shenzhen, China. Five properties (805 rooms) were converted from competitor brands and four limited-service franchised properties (477 rooms) exited the system during the quarter. At quarter-end, the company's lodging group encompassed 3,227 properties and timeshare resorts for a total of nearly 570,000 rooms. The company's worldwide pipeline of hotels under construction, awaiting conversion or approved for development totaled over 115,000 rooms.
Reported results for the 2009 first quarter, the adjusted results and the associated reconciliations are shown on pages A-1 and A-9 of the accompanying schedules. The following paragraphs reflect adjusted results where indicated.
MARRIOTT REVENUES totaled approximately $2.5 billion in the 2009 first quarter compared to $2.9 billion for the first quarter of 2008. Base management and franchise fees declined 13 percent to $213 million reflecting worldwide declines in REVPAR offset in part by fees from new hotels. With continued soft lodging demand trends worldwide, first quarter incentive management fees declined 42 percent. The percentage of company-operated hotels earning incentive management fees declined to 25 percent in the 2009 first quarter compared to 52 percent in the year-ago quarter. Approximately 55 percent of incentive management fees came from hotels outside of North America in the 2009 quarter compared to about 45 percent in the 2008 quarter.
Worldwide comparable company-operated house profit margins declined 340 basis points in the first quarter reflecting weak REVPAR offset by efficiency improvements at the property level. House profit margins for comparable company-operated properties outside North America declined 310 basis points. North American comparable company-operated house profit margins declined 360 basis points from the year-ago quarter.
Owned, leased, corporate housing and other revenue, net of direct expenses, declined 50 percent in the 2009 first quarter, to $13 million, primarily reflecting lower operating results at owned and leased properties and lower termination fees.
First quarter adjusted Timeshare segment contract sales declined to $157 million reflecting continued soft demand and excluding the $28 million allowance for anticipated residential and fractional contract cancellations recorded in the quarter.
In the first quarter of 2009, adjusted Timeshare sales and services revenue declined 31 percent to $226 million reflecting lower demand for timeshare, fractional, residential products and timeshare rentals, partially offset by favorable reportability. Adjusted Timeshare sales and services revenue, net of expenses, totaled $5 million for the quarter.
Adjusted Timeshare segment results, which includes timeshare sales and services revenue, net of direct expenses, as well as base management fees, equity earnings, minority interest and general, administrative and other expenses associated with the timeshare business, totaled $1 million in the 2009 first quarter compared to $4 million in the prior year quarter.
ADJUSTED GENERAL, ADMINISTRATIVE and OTHER expenses for the 2009 first quarter totaled $136 million, a 16 percent decline from $162 million in the year-ago quarter. The 2009 first quarter reflected the benefit of cost reductions throughout the organization, particularly associated with lodging development and the Timeshare segment and lower incentive compensation, partially offset by higher receivable reserves. The 2008 first quarter included an $8 million favorable impact associated with deferred compensation (offset by a similar increase in the provision for taxes) compared to a $5 million favorable impact in the 2009 quarter.
GAINS AND OTHER INCOME totaled $25 million and included a $21 million gain on the extinguishment of debt and $3 million of gains on the sale of real estate and other income and $1 million of preferred returns from joint venture investments. The prior year's first quarter gains totaled $3 million largely generated by preferred returns from joint venture investments.
INTEREST EXPENSE decreased $13 million in the first quarter primarily
due to lower interest rates and lower debt balances.
In the second quarter, the company expects Timeshare sales and services revenue, net of direct expenses, to total about $10 million. Second quarter Timeshare contract sales are expected to total $175 million to $185 million.
The company expects that general, administrative and other expenses will decline from $184 million in 2008 to about $135 million to $140 million in the second quarter of 2009, a decline of roughly 25 percent from 2008.
Based upon the above assumptions, the company expects adjusted diluted EPS from continuing operations attributable to Marriott shareholders for the 2009 second quarter to total $0.20 to $0.23.
For the full year 2009, the company expects the business environment to remain unpredictable and, therefore, is unable to give its typical annual guidance. Instead, the company is providing the following assumptions, which it is using internally for planning purposes. For systemwide hotels outside North America, the company assumes a 13 to 16 percent decline in REVPAR on a constant dollar basis. For North American comparable systemwide hotels, the company assumes a 17 to 20 percent decline in REVPAR. Room growth is expected to total over 30,000 rooms in 2009 as most hotels expected to open are already under construction or undergoing conversion from other brands. All in all, fee revenue under these assumptions could total roughly $1,050 million to $1,100 million in 2009. The company estimates that incentive management fees in 2009 would derive largely from international markets. Owned, leased, corporate housing and other revenue, net of direct expenses, could total $55 million to $65 million in 2009.
The timeshare business is more complex to forecast and model, particularly in this weak economic environment. In 2009, if adjusted Timeshare segment contract sales total roughly $800 million, then adjusted Timeshare sales and services revenue, net of direct expenses, could total approximately $55 million. Base management fees associated with the timeshare business are likely to increase and timeshare site, regional and corporate overhead is likely to decline in 2009. Rental demand remains weak, in part due to a change in marketing strategy, and maintenance fees on unsold units are likely to increase. In addition, recent reductions in timeshare inventory spending are expected to slow reportability of revenue at some projects. While the company expects to complete an additional timeshare note sale in 2009, pricing is likely to remain unfavorable, so no note sale gain is assumed. Under this scenario, adjusted Timeshare segment results for 2009 could total approximately $30 million.
The company anticipates that adjusted general, administrative and other expenses will decline from $751 million to about $580 million to $600 million reflecting substantial savings compared to 2008 as a result of restructuring efforts and cost controls.
While the company cannot forecast results with any certainty, based upon the above assumptions, adjusted diluted EPS from continuing operations attributable to Marriott shareholders for 2009 could total $0.88 to $1.02 and, assuming the investment spending levels below, debt levels, net of cash, could decline $600 million to $650 million by year-end 2009.
The company expects investment spending in 2009 will decline by at least
50 percent from 2008 levels to approximately $350 million to $400 million,
including $30 million for maintenance capital spending, $90 million to
$105 million for capital expenditures, $70 million to $80 million for net
timeshare development, $80 million to $90 million in new mezzanine financing
and mortgage loans, $40 million to $55 million for contract acquisition
costs and $40 million in equity and other investments (including timeshare
Marriott International, Inc. (NYSE: MAR) will conduct
its quarterly earnings review for the investment community and news media
on Thursday, April 23, 2009 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 April 23, 2010. The webcast will also be available
as a podcast from the same site.
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 expected cost savings, 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 depth and duration of the current recession in the lodging industry and the economy generally; supply and demand changes for hotel rooms, vacation ownership, condominiums, and corporate housing; 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 identified in our most recent annual or quarterly report on Form 10-K or Form 10-Q; any of which could cause actual results to differ materially from those expressed in or implied by the statements herein. These statements are made as of the date of this press release, 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. (NYSE: MAR) is a leading lodging company with more than 3,200 lodging properties in 66 countries and territories. Marriott International operates and franchises hotels under the Marriott, JW Marriott, The Ritz-Carlton, 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 Club and Grand Residences by Marriott brands; 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 146,000 employees at 2008 year-end. It is recognized by BusinessWeek as one of the 100 best global brands, by FORTUNE(R) as one of the best companies to work for, and by the U.S. Environmental Protection Agency (EPA) as Partner of the Year since 2004. In fiscal year 2008, Marriott International reported sales from continuing operations of nearly $13 billion. For more information or reservations, please visit our web site at www.marriott.com. For an interactive online version of Marriott's 2008 Annual Report, which includes a short video message from Chairman and CEO J.W. Marriott, Jr., visit www.marriott.com/investor.
MARRIOTT INTERNATIONAL, INC.
2009 First Quarter Results and 2009 Second Quarter and Full Year 2009 Estimated Results as Adjusted. Management evaluates non-GAAP measures that exclude the impact of restructuring costs and other charges and certain tax expenses incurred in the 2009 first quarter as well as estimated restructuring costs expected to be incurred in the second quarter of 2009 because those non-GAAP measures allow for period-over-period comparisons of our on-going core operations before material charges. These non-GAAP measures also facilitate management's comparison of results from our on-going operations before material charges with results from other lodging companies.
During the latter part of 2008 and particularly the fourth quarter, we experienced a significant decline in demand for hotel rooms both domestically and internationally due, in part, to the failures and near failures of several large financial service companies and the dramatic downturn in the economy. Our capital intensive Timeshare business was also hurt by the downturn in market conditions and particularly, the significant deterioration in the credit markets, which resulted in our decision not to complete a note sale in the fourth quarter of 2008 (although we did complete a note sale in the first quarter of 2009). These declines resulted in reduced management and franchise fees, cancellation of development projects, reduced timeshare contract sales, contract cancellation allowances, and charges and reserves associated with expected fundings, loans, Timeshare inventory, accounts receivable, contract cancellation allowances, valuation of Timeshare residual interests, hedge ineffectiveness, and asset impairments. We responded by implementing various cost saving measures, beginning in the fourth quarter of 2008 and which continued in the first quarter of 2009, and resulted in first quarter 2009 restructuring costs of $2 million that were directly related to the downturn. We also incurred other first quarter 2009 charges totaling $127 million that were directly related to the downturn, including asset impairment charges, reserves associated with loans, reversal of the liability related to expected fundings, Timeshare contract cancellation allowances, and charges related to the valuation of Timeshare residual interests. Currently, we expect to incur $11 to $18 million (our calculation assumes a $14 million midpoint) in additional restructuring costs in the 2009 second quarter as a result of our restructuring efforts. This estimate is subject to change.
Certain tax expenses incurred in the first quarter 2009 included $26 million of non-cash charges primarily related to the treatment of funds received from certain foreign subsidiaries that is in ongoing discussion with the Internal Revenue Service ("IRS").
Earnings Before Interest, Taxes, Depreciation and Amortization. Earnings before interest, taxes, depreciation and amortization ("EBITDA") reflects earnings excluding the impact of interest expense, tax expense, depreciation and amortization. Management considers EBITDA to be an indicator of operating performance because it can be used to measure our ability to service debt, fund capital expenditures, and expand our business. EBITDA is used by analysts, lenders, investors and others, as well as by us, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company's capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and tax expense can vary considerably among companies. EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.
Adjusted EBITDA. Management also evaluates adjusted EBITDA which excludes: (1) the 2009 first quarter restructuring costs and other charges totaling $129 million; (2) the 2008 fourth quarter restructuring costs and other charges totaling $192 million; (3) the first quarter 2008 impact of the synthetic fuel business. Management excludes the restructuring costs and other charges incurred in both the 2009 first quarter and in the 2008 fourth quarter for the reasons noted above under "2009 Results as Adjusted." Fourth quarter 2008 restructuring costs and other charges included $55 million of restructuring costs and $137 million of other charges, including charges and reserves associated with expected fundings, loans, Timeshare inventory, accounts receivable, contract cancellation allowances, valuation of Timeshare residual interests, hedge ineffectiveness, and asset impairments. Management also excludes the first quarter 2008 impact of the synthetic fuel business, which was discontinued in 2007 and which did not relate to our core lodging business, to allow for period-over-period comparisons of our on-going core lodging operations and facilitate management's comparison of our results with those of other lodging companies.
Total Debt, Net of Cash. Total debt net of cash reflects total debt less cash and cash equivalents. Management considers total debt net of cash to be a more accurate indicator of the net debt that must be repaid or refinanced at maturity (as it gives consideration to cash resources available to retire a portion of the debt when due). Additionally, management believes that this financial measure provides a clearer picture of the future demands on cash to repay debt. Management uses this financial measure in making decisions regarding its borrowing capacity and future refinancing needs.
Marriott International, Inc.
|Also See:||Marriott Lost $10 million in the 4th Qtr of 2008 Compared to Year-earlier Net Income of $176 million, Worldwide REVPAR Declined 8.4% / February 2009|
|Marriott Reports First Quarter 2008 Net Income Declined 34%; Performance at U.S. Hotels Reflect Slowing Economic Growth / April 2008|