Marriott International reports Q4 and full year 2014 results

BETHESDA, MD – Marriott International, Inc today reported fourth quarter and full year 2014 results.

Fourth quarter 2014 net income totaled $197 million, a 30 percent increase over 2013 net income. Fourth quarter 2014 diluted earnings per share (EPS) totaled $0.68, a 39 percent increase from 2013 diluted EPS. On October 28, 2014, the company forecasted fourth quarter diluted EPS of $0.62 to $0.66.

Arne M. Sorenson, president and chief executive officer of Marriott International, said, “Today, we post both record earnings and unit growth and conclude 2014 with the strongest worldwide development pipeline of rooms in our history. Our powerful portfolio of brands has never been better positioned or more in demand by our owners, franchisees and guests. In 2014, we signed agreements for a record-breaking 100,000 rooms, boosting our development pipeline to nearly 240,000 rooms. At year-end, our system reached nearly 715,000 rooms in 79 countries and territories. With the strength of our portfolio, we expect to reach one million rooms open or under development well before the end of 2015, offering a growing number of travel opportunities for our 49 million loyal Rewards members.

“In the fourth quarter, our worldwide systemwide RevPAR increased more than 6 percent. In North America, business and leisure transient demand were strong, which drove limited-service systemwide RevPAR up 8 percent. We expect transient demand to remain strong. In fact, based on signings to date, we expect special corporate room rates across all our managed North American hotels will increase 5 to 6 percent in 2015.

“During the year, our calendar of group meeting business in North America favored the first three quarters of 2014, largely due to the timing of holidays. As expected, this tempered results at our full-service hotels during the fourth quarter, particularly at our largest convention hotels. We are seeing group business restrengthen for 2015. Group revenue bookings for our managed full-service hotels are up almost 5 percent for the full year 2015 and 6 percent in the first quarter alone.

“Our international hotels performed well in the fourth quarter. Strong leisure demand in the Caribbean and Mexico, good weather in Europe, increased travel to Egypt, and improving trends in India and Japan drove systemwide constant dollar RevPAR up nearly 5 percent. However, on an actual dollar basis, our international systemwide RevPAR increased only 0.5 percent. After hedges, the change in exchange rates reduced our income before taxes by $5 million in the fourth quarter and $23 million for the full year. The full year impact included $11 million related to the Venezuela devaluation earlier in 2014.

“We remain committed to driving growth, delivering results and returning excess cash to shareholders. In 2014, worldwide systemwide RevPAR increased just under 7 percent and we expanded our system size by 6 percent, net, including the rooms from the Protea transaction. Earnings per share increased by 27 percent and adjusted EBITDA rose 15 percent. In 2015, we expect worldwide systemwide constant dollar RevPAR will increase 5 to 7 percent, and we expect the number of rooms in our existing brands will increase by about 6 percent, net. In addition, we expect to add an additional 10,000 rooms with the closing of the anticipated Delta transaction. Excluding the impact of Delta, diluted EPS could total $3.00 to $3.12 in 2015, an 18 to 23 percent increase over 2014 and adjusted EBITDA could increase 13 to 16 percent. We returned nearly $1.75 billion to shareholders through share repurchase and dividends in 2014 and we expect to return at least as much in 2015. We are looking forward to another great year.”
For the 2014 fourth quarter, RevPAR for worldwide comparable systemwide properties increased 6.2 percent (a 5.3 percent increase using actual dollars). For the full year, RevPAR for worldwide comparable systemwide properties increased 6.6 percent (a 6.3 percent increase using actual dollars).

In North America, comparable systemwide RevPAR increased 6.7 percent in the fourth quarter of 2014, including a 4.2 percent increase in average daily rate. RevPAR for comparable systemwide North American full-service hotels (including Marriott Hotels, The Ritz-Carlton, Renaissance Hotels, Gaylord Hotels and Autograph Collection Hotels) increased 5.2 percent with a 4.4 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 8.2 percent in the fourth quarter with a 4.6 percent increase in average daily rate.

International comparable systemwide RevPAR rose 4.6 percent (a 0.5 percent increase using actual dollars) in the fourth quarter. For the full year, international comparable systemwide RevPAR rose 5.1 percent (a 4.0 percent increase using actual dollars).

Marriott added 70 new properties (14,605 rooms) to its worldwide lodging portfolio in the 2014 fourth quarter, including the Atlantis Paradise Island, an Autograph Collection hotel, the Miami Beach EDITION and the Ritz-Carlton, Bali. Twenty-two properties (1,851 rooms) exited the system during the quarter. At year-end, the company’s lodging system encompassed 4,175 properties and timeshare resorts for a total of nearly 715,000 rooms.

The company’s worldwide development pipeline increased to nearly 1,450 properties with nearly 240,000 rooms at year-end, including 180 properties with approximately 30,000 rooms approved for development, but not yet subject to signed contracts. The company’s pipeline at year-end 2014 does not include the approximately 10,000 rooms associated with the expected Delta transaction announced on January 27, 2015.

MARRIOTT REVENUES totaled nearly $3.6 billion in the 2014 fourth quarter compared to revenues of $3.2 billion for the fourth quarter of 2013. Base management and franchise fees totaled $348 million compared to $315 million in the year-ago quarter, an increase of 10 percent. The increase largely reflected higher RevPAR and new unit growth, partially offset by $2 million of unfavorable foreign exchange.

Fourth quarter worldwide incentive management fees increased 12 percent to $82 million primarily due to higher RevPAR and house profit margins, partially offset by $3 million of unfavorable foreign exchange and $5 million of lower deferred fee recognition. In the fourth quarter, 40 percent of worldwide company-managed hotels earned incentive management fees compared to 32 percent in the year-ago quarter. For full year 2014, 50 percent of worldwide company-managed hotels earned incentive management fees compared to 38 percent in 2013.

Worldwide comparable company-operated house profit margins increased 90 basis points in the fourth quarter with higher room rates, improved productivity and solid cost controls. House profit margins for comparable company-operated properties outside North America increased 70 basis points and North American comparable company-operated house profit margins increased 110 basis points from the year-ago quarter.

Owned, leased, and other revenue, net of direct expenses, totaled $73 million, compared to $63 million in the year-ago quarter. The year-over-year improvement reflected higher residential and credit card branding fees, an increase in termination fees and the favorable impact of the Protea leased hotel portfolio acquired at the beginning of the second quarter, partially offset by $2 million of higher pre-opening expenses and $1 million of unfavorable foreign exchange.
On October 28, 2014, the company estimated owned, leased, and other revenue, net of direct expenses for the fourth quarter would total approximately $65 million. Actual results in the quarter were above the estimate largely due to $4 million of stronger results at owned and leased hotels and $4 million of higher than expected termination fees.

GENERAL, ADMINISTRATIVE, and OTHER expenses for the 2014 fourth quarter totaled $180 million compared to $178 million in the year-ago quarter. Expenses in the quarter included $4 million of guarantee reserves relating to two hotels. For full year 2014, general, administrative, and other expenses increased 2 percent to $659 million.

GAINS AND OTHER INCOME totaled $4 million in the fourth quarter. Gains and other income in the fourth quarter of 2014 included a $5 million distribution related to the sale of a hotel in an investment fund.

INTEREST EXPENSE, NET declined $9 million in the fourth quarter. Interest expense for the fourth quarter decreased $6 million largely due to a $7 million one-time favorable interest expense true-up, partially offset by higher senior debt borrowings. Interest income increased $3 million year-over-year as a result of an increase in loans receivable.

On October 28, 2014, the company estimated interest expense, net for the fourth quarter would total approximately $20 million. Actual interest expense, net in the quarter was lower than the estimate largely due to the one-time favorable interest expense true-up.
EQUITY IN EARNINGS increased $3 million in the fourth quarter. The increase largely reflected better operating results in one joint venture.

Adjusted Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)

For the fourth quarter, adjusted EBITDA totaled $384 million, a 20 percent increase over fourth quarter 2013 adjusted EBITDA of $321 million. See page A-8 for the adjusted EBITDA calculation.

Full year 2014 adjusted EBITDA totaled $1,524 million, a 15 percent increase over 2013 adjusted EBITDA of $1,325 million.

BALANCE SHEET

At year-end, total debt was $3,781 million and cash balances totaled $104 million, compared to $3,199 million in debt and $126 million of cash at year-end 2013.

At the beginning of the 2014 fourth quarter, the company issued $400 million of Series N Senior Notes due in 2021 with a 3.1 percent interest rate coupon.

COMMON STOCK

Weighted average fully diluted shares outstanding used to calculate diluted EPS totaled 289.0 million in the 2014 fourth quarter, compared to 307.5 million in the year-ago quarter.

The company repurchased 7.7 million shares of common stock in the fourth quarter at a cost of $544 million. For full year 2014, Marriott repurchased 24.2 million shares of its stock for $1.5 billion at an average price of $62.09. To date in 2015, the company has repurchased 3.6 million shares for $275 million. On February 12, 2015, the board of directors increased the company’s share authorization to repurchase shares by 25 million for a total authorization of 36.5 million shares as of February 18, 2015.

OUTLOOK

For the 2015 first quarter, the company expects comparable systemwide RevPAR on a constant dollar basis will increase 5 to 7 percent in North America, 4 to 6 percent outside North America and 5 to 7 percent worldwide.

For full year 2015, the company expects comparable systemwide RevPAR on a constant dollar basis will increase 5 to 7 percent in North America, 3 to 5 percent outside North America and 5 to 7 percent worldwide.

The company anticipates gross room additions of approximately 7 percent, or 6 percent, net, worldwide for the full year 2015. This does not include the approximately 10,000 rooms associated with the expected Delta transaction.

The company assumes full year fee revenue could total $1,875 million to $1,915 million, growth of 9 to 11 percent over 2014 fee revenue of $1,719 million.

For 2015, the company anticipates general, administrative and other expenses will total $635 million to $645 million, a 2 to 4 percent decline compared to 2014 expenses of $659 million.

Given these assumptions, 2015 diluted EPS could total $3.00 to $3.12, an 18 to 23 percent increase year-over-year. The guidance provided for 2015 does not include the impact of the expected Delta transaction.

First Quarter 2015 Full Year 2015

Total fee revenue $440 million to $450 million $1,875 million to $1,915 million

Owned, leased and other revenue, net of direct expenses

Approx. $60 million Approx. $250 million

Depreciation, amortization, and other expenses Approx. $30 million Approx. $135 million

General, administrative, and other expenses $150 million to $155 million $635 million to $645 million
Operating income $315 million to $330 million $1,345 million to $1,395 million
Gains and other income Approx. $0 million Approx. $0 million
Net interest expense1 Approx. $30 million Approx. $135 million
Equity in earnings (losses) Approx. $0 million Approx. $5 million
Earnings per share $0.68 to $0.72 $3.00 to $3.12
Tax rate 32.3 percent

1 Net of interest income

The company expects investment spending in 2015 will total approximately $600 million to $800 million, including approximately $125 million for maintenance capital and approximately $135 million for the expected Delta transaction. 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, at least $1.75 billion could be returned to shareholders through share repurchases and dividends.