Marriott International Reports Second Quarter Results

BETHESDA, Md., July 29, 2014 /PRNewswire/ --

HIGHLIGHTS

• Second quarter adjusted diluted EPS totaled $0.71, a 25 percent increase over prior year reported results. Reported diluted EPS totaled $0.64;
• North American comparable systemwide RevPAR rose 6.0 percent in the second quarter with average daily rates up 3.7 percent;
• On a constant dollar basis, worldwide comparable systemwide RevPAR rose 5.8 percent in the second quarter, including a 3.5 percent increase in average daily rate;
• Marriott repurchased 5.0 million shares of the company's common stock for $300 million during the second quarter. Year-to-date, the company repurchased 12.8 million shares for $706 million;
• Comparable company-operated house profit margins increased 110 basis points in North America and 80 basis points worldwide in the second quarter;
• The company's adjusted operating income margin increased to 47 percent compared to 43 percent in the year-ago quarter;
• At the end of the second quarter, the company's worldwide development pipeline increased to nearly 215,000 rooms, including more than 30,000 rooms approved, but not yet subject to signed contracts;
• Over 18,700 rooms were added during the second quarter, including over 10,000 rooms associated with the Protea transaction and nearly 3,200 rooms in other international markets;
• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $408 million in the quarter, a 10 percent increase over second quarter 2013 adjusted EBITDA.

Marriott International, Inc. (NASDAQ: MAR) today reported second quarter 2014 results.

Second quarter 2014 net income totaled $192 million, a 7 percent increase compared to second quarter 2013 net income.  Diluted earnings per share (EPS) totaled $0.64, a 12 percent increase from diluted EPS in the year-ago quarter.  Second quarter 2014 results reflect a $15 million pretax ($9 million after-tax and $0.03 per diluted share) impairment charge, an $11 million pretax ($7 million after-tax and $0.02 per diluted share) litigation reserve and a $7 million pretax ($5 million after-tax and $0.02 per diluted share) unfavorable foreign exchange impact related to Venezuelan currency devaluation.  Excluding these items, second quarter adjusted net income totaled $213 million and adjusted diluted EPS was $0.71.  On April 29, 2014, the company forecasted second quarter diluted EPS of $0.63 to $0.68, which did not include the three items discussed above.  See page A-11 for the adjusted EPS calculation.

Arne M. Sorenson, president and chief executive officer of Marriott International, said, "Results in the quarter exceeded our expectations as worldwide RevPAR increased nearly 6 percent.  In North America, strong transient demand drove RevPAR higher and room rates rose nearly 4 percent.    

"With strong franchisee and owner demand for our brands, we are on pace to have another record development year in 2014 with contracts for roughly 295 hotels with nearly 46,000 rooms already signed, or nearly a dozen hotels per week, and well ahead of our 2013 first half signings pace.  At the end of the second quarter, our development pipeline reached a record 215,000 rooms.

"We were pleased to announce a few weeks ago that the 3,400-room Atlantis, Paradise Island will be joining the Autograph Collection later this year, further accelerating our growth in the luxury and lifestyle space.  The Autograph Collection is just one brand in our luxury and lifestyle portfolio (The Ritz-Carlton, Bulgari Hotels & Resorts, EDITION, JW Marriott Hotels, Autograph Collection, Renaissance Hotels, AC Hotels by Marriott, Protea Fire & Ice Hotels and Moxy Hotels) catering to next generation travelers, a fast growing customer segment.  Representing nearly 30 percent of our current development pipeline, we expect to increase our room distribution of these luxury and lifestyle brands by 50 percent over the next few years.

"We are bullish on the remainder of 2014.  The strong RevPAR growth in the second quarter combined with very strong group bookings for the third quarter give us the confidence to increase our full year 2014 North American and worldwide RevPAR growth guidance to 5 to 7 percent.  We are also increasing our expectations for gross room additions to 7 percent, 6 percent net, based on strong development interest in our brands.  Through the first two quarters, we have returned $766 million to our shareholders through dividends and share repurchases and are on pace to return $1.35 billion to $1.6 billion to shareholders for the full year."

For the 2014 second quarter, RevPAR for worldwide comparable systemwide properties increased 5.8 percent (a 5.9 percent increase using actual dollars).

In North America, comparable systemwide RevPAR increased 6.0 percent in the second quarter of 2014, including a 3.7 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 5.3 percent with a 3.5 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 6.8 percent in the second quarter with a 4.1 percent increase in average daily rate.

Excluding Venezuela, international comparable systemwide RevPAR rose 4.6 percent (a 5.1 percent increase using actual dollars) in the second quarter.

Marriott added 162 new properties (18,729 rooms) to its worldwide lodging portfolio in the 2014 second quarter, including 113 properties (10,016 rooms) related to the Protea transaction.  Nine properties (1,134 rooms) exited the system during the quarter.  At quarter-end, the company's lodging group encompassed 4,087 properties and timeshare resorts for a total of nearly 697,000 rooms.

The company's worldwide development pipeline increased to roughly 1,300 properties with nearly 215,000 rooms at quarter-end, including 213 properties with more than 30,000 rooms approved for development, but not yet subject to signed contracts.

MARRIOTT REVENUES totaled nearly $3.5 billion in the 2014 second quarter compared to revenues of approximately $3.3 billion for the second quarter of 2013.  Base management and franchise fees totaled $370 million compared to $343 million in the year-ago quarter, an increase of 8 percent.  The year-over-year increase largely reflects higher RevPAR and new unit growth.

Second quarter worldwide incentive management fees increased 28 percent to $82 million primarily due to strong RevPAR and unit growth, as well as favorable timing of fee recognition.  The company anticipates that incentive management fee revenue will increase at a high teens rate for full year 2014.  In the second quarter, 40 percent of worldwide company-managed hotels earned incentive management fees compared to 34 percent in the year-ago quarter.

Worldwide comparable company-operated house profit margins increased 80 basis points in the second quarter with improvement in both room rates and productivity.  House profit margins for comparable company-operated properties outside North America increased 30 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 $70 million, compared to $65 million in the year-ago quarter.  Improved results reflected strong performance at several leased hotels, the addition of a property the company acquired in the fourth quarter of 2013, the impact of the Protea portfolio acquired at the beginning of the quarter and higher residential and credit card branding fees, partially offset by $13 million of lower termination fees.  Results for the second quarter of 2013 included $4 million of expenses related to international lease terminations.

DEPRECIATION, AMORTIZATION, and OTHER expense totaled $47 million in the 2014 second quarter compared to $33 million in the year-ago quarter.  The increase in expense largely reflects a $15 million impairment charge resulting from the reallocation of costs between the Miami EDITION hotel and the Miami EDITION residences.  The estimated cost of the total Miami EDITION project, which includes both the hotel and residences, remains unchanged from last quarter.  Prior year results included a $5 million impairment of deferred contract acquisition cost.

GENERAL, ADMINISTRATIVE and OTHER expenses for the 2014 second quarter totaled $159 million, a 1 percent decline compared to the year-ago quarter.  Expenses for the quarter included a $7 million foreign exchange loss associated with the Venezuelan Bolivar.  Expenses in the second quarter of 2013 included a $5 million performance cure payment.

On April 29, the company estimated general and administrative expenses for the second quarter would total $165 million to $170 million.  Actual expenses in the quarter were below the range largely due to lower than expected spending, some of which was favorable timing, and lower bad debt expenses, partially offset by the foreign exchange impact discussed above.

GAINS AND OTHER INCOME totaled $3 million in the quarter compared to $10 million in the year-ago quarter.  In the 2013 second quarter, the company recorded an $8 million gain on the sale of an investment in equity securities.

EQUITY LOSSES increased $6 million in the second quarter to an $8 million dollar loss largely due to an $11 million litigation reserve.

Adjusted Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)
Adjusted EBITDA totaled $408 million in the 2014 second quarter, a 10 percent increase over 2013 second quarter adjusted EBITDA of $372 million.  See page A-8 for the EBITDA calculation.

BALANCE SHEET
At the end of the second quarter, total debt was $3,404 million and cash balances totaled $192 million, compared to $3,199 million in debt and $126 million of cash at year-end 2013.

COMMON STOCK
Weighted average fully diluted shares outstanding used to calculate diluted EPS totaled 298.7 million in the 2014 second quarter, compared to 314.0 million in the year-ago quarter.

The company repurchased 5.0 million shares of common stock in the second quarter at a cost of $300 million.  Year-to-date, Marriott repurchased 12.8 million shares of its stock for $706 million.  The remaining share authorization as of July 29, 2014, totaled 26.5 million shares.

OUTLOOK
For the 2014 third quarter, the company expects comparable systemwide RevPAR on a constant dollar basis will increase 6 to 8 percent in North America, 4 to 6 percent outside North America and 5.5 to 7.5 percent worldwide.

The company expects full year 2014 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.  On April 29, 2014, the company forecasted worldwide and North American RevPAR growth of 4.5 to 6.5 percent for full year 2014.

The company anticipates gross room additions of 7 percent worldwide for the full year 2014 including the 10,016 rooms associated with the Protea acquisition.  Net of deletions, the company expects its portfolio of rooms will increase by approximately 6 percent by year-end 2014. 

The company assumes full year fee revenue could total $1,685 million to $1,725 million, growth of 9 to 12 percent over 2013 fee revenue of $1,543 million. 

For 2014, the company anticipates general, administrative and other expenses will total $640 million to $650 million, flat to down 1 percent compared to 2013 expenses of $649 million.

Given these assumptions, 2014 diluted EPS could total $2.40 to $2.51, a 20 to 25 percent increase year-over-year.  This full year EPS outlook reflects reported second quarter results, including the $0.07 of unfavorable adjustments in the quarter.

The company expects investment spending in 2014 will total approximately $800 million to $1.0 billion, including approximately $150 million for maintenance capital spending and $193 million associated with the Protea 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, approximately $1.35 billion to $1.6 billion could be returned to shareholders through share repurchases and dividends.

Based upon the assumptions above, the company expects full year 2014 adjusted EBITDA will total $1,465 million to $1,515 million, an 11 to 14 percent increase over the 2013 full year adjusted EBITDA of $1,325 million.  See page A-9 for the adjusted EBITDA calculation.

Marriott International, Inc. (NASDAQ: MAR) will conduct its quarterly earnings review for the investment community and news media on Wednesday, July 30, 2014 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 July 30, 2015.

The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 59383825.  A telephone replay of the conference call will be available from 1 p.m. ET, Wednesday, July 30, 2014 until 8 p.m. ET, Wednesday, August 6, 2014.  To access the replay, call 404-537-3406.  The conference ID for the recording is 59383825.

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 29, 2014.  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. (NASDAQ: MAR) is a global leading lodging company based in Bethesda, Maryland, USA, with more than 4,000 properties in 79 countries and territories.  Marriott International reported revenues of nearly $13 billion in fiscal year 2013.  The company operates and franchises hotels and licenses vacation ownership resorts under 18 brands, including: Marriott Hotels, The Ritz-Carlton, JW Marriott, Bulgari, EDITION, Renaissance, Gaylord Hotels, Autograph Collection, AC Hotels by Marriott, Moxy Hotels (expected opening in 2014), Courtyard, Fairfield Inn & Suites, SpringHill Suites, Residence Inn, TownePlace Suites, Protea Hotels, Marriott Executive Apartments and Marriott Vacation Club timeshare brand.  Marriott has been consistently recognized as a top employer and for its superior business ethics.  The company also manages the award-winning guest loyalty program, Marriott Rewards® and The Ritz-Carlton Rewards® program, which together surpass 45 million members.  For more information or reservations, please visit our website at www.marriott.com, and for the latest company news, visit www.marriottnewscenter.com.

IRPR#1

Tables follow

MARRIOTT INTERNATIONAL, INC.
NON-GAAP FINANCIAL MEASURES

In our press release and schedules, and on the related conference call, we report certain financial measures that are not required by, or presented in accordance with United States generally accepted accounting principles ("GAAP"). We discuss management's reasons for reporting these non‐GAAP measures below, and the press release schedules reconcile the most directly comparable GAAP measure to each non‐GAAP measure that we refer to (identified by a double asterisk on the preceding pages). Although management evaluates and presents these non‐GAAP measures for the reasons described below, please be aware that these non‐GAAP measures have limitations and should not be considered in isolation or as a substitute for revenue, operating income, income from continuing operations, net income, earnings per share or any other comparable operating measure prescribed by GAAP. In addition, we may calculate and/or present these non‐GAAP financial measures differently than measures with the same or similar names that other companies report, and as a result, the non‐GAAP measures we report may not be comparable to those reported by others.

Adjusted Measures that Exclude 2014 Second Quarter Charges. We recorded charges of $33 million pre‐tax ($21 million after‐tax) in the second quarter of 2014, none of which were allocated to any of our business segments, consisting of:  (1) a $15 million impairment charge recorded in the "Depreciation, amortization, and other" caption of our Income Statement following an evaluation of our EDITION hotels for recovery and determination that our cost estimates exceeded our total fixed sales price; (2) an $11 million charge recorded in "Equity in losses" caption of our Income Statement for a litigation reserve; and (3) a $7 million charge recorded in the "General, administrative, and other" caption of our Income Statement for foreign currency exchange losses from the devaluation of assets denominated in Venezuelan Bolivars. We believe that measures that exclude these 2014 second quarter charges are a meaningful measure of our performance because these measures permit period-over-period comparisons of our ongoing core operations before these items and facilitate our comparison of results before these items with results from other lodging companies. 

Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA. EBITDA, a financial measure that is not required by, or presented in accordance with GAAP, reflects net income excluding the impact of interest expense, provision for income taxes, depreciation and amortization. We believe that EBITDA is a meaningful indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use EBITDA, as do analysts, lenders, investors and others, 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 provision for income taxes can vary considerably among companies. EBITDA also excludes depreciation and amortization expense which we report under "Depreciation, amortization, and other" as well as depreciation included under "Reimbursed costs" in our Consolidated Statements of Income, 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.

We also believe that Adjusted EBITDA, another non-GAAP financial measure, is a meaningful indicator of operating performance. Our Adjusted EBITDA reflects adjustments to exclude pre-tax impairment charges of $10 million in the 2014 first quarter and $15 million in the 2014 second quarter, both which relate to the impairment charge described more fully above, and share-based compensation expense for all periods presented. Because companies use share-based payment awards differently, both in the type and quantity of awards granted, we excluded share-based compensation expense to address considerable variability among companies in recording compensation expense. We believe that Adjusted EBITDA that excludes these items is a meaningful measure of our operating performance because it permits period-over-period comparisons of our ongoing core operations before these items and facilitates our comparison of results before these items with results from other lodging companies.

EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as substitutes for performance measures calculated under GAAP. Both of these non-GAAP measures exclude certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate EBITDA and in particular Adjusted EBITDA differently than we do or may not calculate them at all, limiting the usefulness of EBITDA and Adjusted EBITDA as comparative measures.

Adjusted 2014 EPS Excluding 2014 Other Charges, Net of Tax. Our EPS excludes charges of $33 million pre‐tax ($21 million after‐tax) that we recorded in the second quarter of 2014, each of which we describe more fully above. We believe that EPS excluding these items is a meaningful measure of our performance because it permits period-over-period comparisons of our ongoing core operations before these items and facilitates our comparison of results before these items with results from other lodging companies.

A-12

MARRIOTT INTERNATIONAL, INC.
NON-GAAP FINANCIAL MEASURES

Adjusted Operating Income Margin Excluding Cost Reimbursements and Other Charges. Cost reimbursements revenue represents reimbursements we receive for costs we incur on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are the employer, but also includes reimbursements for other costs, such as those associated with our Marriott Rewards and The Ritz‐Carlton Rewards programs. As we record cost reimbursements based on the costs we incur with no added markup, this revenue and related expense has no impact on either our operating income or net income because cost reimbursements revenue net of reimbursed costs expense is zero. We consider operating income and therefore, operating income margin, as adjusted for the $15 million pre-tax impairment charge and the $7 million pre-tax foreign currency exchange losses from the devaluation of assets denominated in Venezuelan Bolivars, meaningful for the reasons noted above.  In calculating adjusted operating income margin we consider total revenues as adjusted to exclude cost reimbursements and adjusted operating income margin to further exclude cost reimbursements to be meaningful metrics as they represent that portion of revenue and operating income margin that impacts operating income and net income.

A-13

SOURCE Marriott International, Inc.