Marriott International Reports First Quarter Results
Bethesda, MD.- 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.
ADJUSTED EQUITY IN EARNINGS (LOSSES) totaled a $3 million loss in the quarter compared to $27 million in earnings in the year-ago quarter. Losses in the 2009 first quarter primarily reflected lower operating results in one joint venture. Equity earnings in the 2008 first quarter included a $15 million gain on the sale of a joint venture’s assets, insurance proceeds of $6 million received through a joint venture and $7 million in earnings from a timeshare joint venture project.
At the end of first quarter 2009, total debt was $2,977 million and cash balances totaled $168 million, compared to $3,095 million in debt and $134 million of cash at year-end 2008. The company repurchased $122 million of its Senior Notes during the quarter. As of the end of the first quarter 2009, Marriott had drawn down $1.0 billion under its $2.4 billion bank revolver.
Weighted average fully diluted shares outstanding totaled 356.7 million in the 2009 first quarter compared to 371.9 million in the year-ago quarter. The remaining share repurchase authorization, as of March 27, 2009, totaled 21.3 million shares. No share repurchases are planned in 2009.
While Marriott typically provides a range of guidance for future performance, the current global economic and financial climate continues to make predictions very difficult. For the second quarter of 2009, the company expects North American comparable systemwide REVPAR to decline 22 to 25 percent and comparable systemwide REVPAR outside North America to decline roughly 17 to 20 percent on a constant dollar basis. Based on those assumptions, total fee revenue could total $245 million to $255 million and owned, leased, corporate housing and other revenue, net of direct expenses, could total $10 million to $15 million.
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 equity investments).
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