Marriott International Reports Outstanding Quarter
WASHINGTON, Marriott International, Inc. (NYSE: MAR - News) today reported diluted earnings per share (EPS) of $0.65 in the third quarter of 2005 and income from continuing operations of $148 million. Results included a $17 million pre-tax impairment charge ($0.05 per share after-tax) related to an investment in a Delta Air Lines leveraged aircraft lease. EPS excluding this charge was $0.
- Diluted earnings per share (EPS) totaled $0.65 in the third quarter of 2005 and income from continuing operations was $148 million. Results included a $17 million non-cash pre-tax impairment charge ($0.05 per share after-tax) related to an investment in a Delta Air Lines leveraged aircraft lease. EPS excluding this charge was $0.70, up 27 percent from comparable EPS in the 2004 third quarter;
- Worldwide systemwide, comparable revenue per available room (REVPAR) increased 9.2 percent (8.8 percent using constant dollars) over third quarter 2004, driven by an 8.0 percent increase in average daily rate and a nearly 1 percentage point increase in occupancy to 75.8 percent;
- Incentive management fees grew 43 percent to $30 million, reflecting a 190 basis point increase in worldwide property level house profit margins.
- The company's pipeline of hotels under construction, awaiting conversion, or approved for development totaled over 60,000 rooms at quarter end, including nearly 5,000 Ritz-Carlton rooms. The company opened over 5,000 rooms in the third quarter with approximately one- quarter converted from other brands;
- A record 20 million shares of the company's common stock were repurchased year-to-date through the third quarter for $1.3 billion; 8 million shares were bought back for $531 million in the third quarter alone;
- The company expects North American REVPAR to increase 8 to 10 percent for the fourth quarter of 2005 and expects fourth quarter fully diluted earnings per share to total $0.95 to $0.98 (including $0.12 per share for synthetic fuel operations);
- In 2006, the company expects North American REVPAR to increase 7 to 9 percent. Company-operated North American hotel margins are expected to improve 150 to 200 basis points.
WASHINGTON, Marriott International, Inc. (NYSE: MAR - News) today reported diluted earnings per share (EPS) of $0.65 in the third quarter of 2005 and income from continuing operations of $148 million. Results included a $17 million pre-tax impairment charge ($0.05 per share after-tax) related to an investment in a Delta Air Lines leveraged aircraft lease. EPS excluding this charge was $0.70, up 27 percent from comparable EPS in the 2004 third quarter.
J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, said, "Third quarter results were very strong despite Hurricane Katrina late in the quarter. In the aftermath of the storm, our associates are working hard to help guests, other associates and the community. By the end of this week 12 of the company's 16 New Orleans area hotels will be open and serving guests, many of whom are involved in emergency management and reconstruction efforts. We are proud of our associates' absolute determination to get things up and running as quickly as possible, even in the face of the difficult living and working conditions in New Orleans.
"Overall, the third quarter results were impressive, with particularly strong performances in New York City, Washington, D.C., St. Louis, Florida, and Southern California. Travel to Hawaii increased significantly as Japanese travelers continue to return to the Islands. Internationally, we saw robust growth at our hotels in China and the Middle East, as well as strong demand in Mexico.
"Rarely have we seen a more favorable pricing climate for our industry. In the third quarter, North American group meeting attendance exceeded meeting planner expectations and food and beverage revenue accelerated. Transient demand was strong in most markets around the world. Hotel supply growth, on the other hand, remained modest. The escalating cost of building materials and high land costs continue to temper new U.S. hotel supply.
"Marriott's industry-leading distribution and brand quality help us capture more than our fair share of hotel demand, driving our pricing power. And because of owners' and franchisees' preference for our brands, we continue to add more than our fair share of new units, particularly through conversions of higher-profit full-service hotels. In the third quarter, over 40 percent of our full-service hotel openings were conversions from other brands.
"Marriott's new and exciting approach to style, design and comfort is also having an impact. Just two weeks ago, we led our industry with a bold new approach to marketing at a four-day event in New York's Times Square. We constructed a facsimile of the new Marriott Hotels & Resorts room featuring our luxurious new bedding, state-of-the-art technology and comfortable style, and built an entertainment stage on top of it. The event generated tremendous attention. We also showcased our new ad campaign featuring the new bedding collection, Revive. Approximately 95 percent of our hotels have already signed up for the Revive bedding installation to roll out during the balance of the year. New room designs will appear as hotels undergo regular renovation cycles and as new properties enter the system," said Mr. Marriott.
In the third fiscal quarter (12 week period from June 18, 2005 to September 9, 2005), REVPAR for the company's 633 comparable company-operated North American properties increased by 8.8 percent (9.9 percent for the calendar quarter July 1 - September 30); occupancy was up nearly 1 percentage point to 75.9 percent. The continuation of strong demand across the company's brands in North America resulted in a 7.9 percent increase in average daily rate.
REVPAR at the comparable company-operated North American full-service hotels (including Marriott Hotels & Resorts, JW Marriott Hotels & Resorts, The Ritz-Carlton, and Renaissance Hotels & Resorts) increased by 9.2 percent during the quarter (10.8 percent for the calendar quarter), driven by a 7.3 percent increase in average daily rate and a 1.3 percentage point occupancy gain to 75.2 percent. North American company-operated REVPAR for comparable select-service and extended-stay brands (including Courtyard, Fairfield Inn, Residence Inn, TownePlace Suites, and SpringHill Suites) increased 8 percent (8.1 percent for the calendar quarter), driven by solid occupancy and an 8.5 percent increase in average daily rate.
International systemwide comparable REVPAR increased 13.7 percent (11.3 percent using constant dollars), including an 11.8 percent increase in rate and a 1.3 percentage point increase in occupancy. Demand for our hotels in Asia, the Caribbean and Mexico has been strong all year. In the third quarter, comparable REVPAR in China was up 10.4 percent and Mexico rose 11.7 percent.
The company added 35 hotels (5,174 rooms) to the worldwide lodging portfolio during the third quarter, while four properties (1,664 rooms) exited the system. At quarter-end, the company's lodging group encompassed 2,707 hotels and timeshare resorts (493,274 rooms).
MARRIOTT REVENUES totaled $2.7 billion in the third quarter of 2005, an 18 percent increase from 2004. Base management fees rose 11 percent to $108 million reflecting strong REVPAR and growth in new managed units, including the addition of 46 formerly franchised hotels in the United Kingdom. Marriott's purchase of 13 formerly managed properties from CTF Holdings depressed the growth of base management fees but increased owned and leased revenue substantially. Franchise fees rose 5 percent during the quarter due to strong REVPAR and unit growth, offset by the sale of the Ramada International franchise business in 2004 and the transfer to managed of the Whitbread hotels in 2005.
With an 8.7 percent increase in room rates at comparable company-operated properties worldwide (using actual exchange rates), company-operated hotels generated house profit margins of 32.8 percent, a 190 basis point improvement over the prior year quarter. House profit margins for comparable North American company-operated properties increased 180 basis points, with full- service hotels leading the way with 220 basis points growth in house profit margins. Property level EBITDA margins for comparable North American company- operated properties, which include deductions for insurance and property taxes, but exclude management fees, increased 250 basis points for full- service hotels.
Strong property level profits drove incentive management fees up 43 percent to $30 million, including $6 million for incentive fees from two hotels that were calculated based on prior period results, but not earned and due until the third quarter of 2005. In the 2005 third quarter, 44 percent of the company's managed properties paid incentive fees, compared to 27 percent in the year ago quarter.
Owned, leased, corporate housing and other revenue increased 54 percent to $236 million, while profits nearly tripled to $39 million. Revenues and profits improved due to Marriott's acquisition of the CTF properties as well as strong property level results at the company's existing owned and leased properties, many of which have recently been renovated.
Property level room revenue booked through Marriott.com totaled $637 million during the third quarter, an increase of 48 percent over the prior year. Marriott.com gross revenues exceeded the $10 million per day milestone 10 times during the quarter. In addition, Marriott.com was ranked as the top travel site in the recently issued Online Customer Respect Study of the largest airline and travel firms. The company continues to make enhancements to its proprietary online booking channel, including new airline ticket and car rental booking capabilities.
Revenue from timeshare interval sales and services increased 31 percent during the third quarter of 2005, largely due to higher financially reportable development revenue. Timeshare contract sales, including sales made by joint venture projects, were flat, reflecting strong sales at resorts in Aruba and Hawaii, offset by lower sales at the Ritz-Carlton Club resorts in St. Thomas, Bachelor Gulch, Colorado and Jupiter, Florida. Ritz-Carlton Club resorts continue to experience strong demand but had limited inventory available in 2005. Contract sales for the Marriott Vacation Club Resorts brand alone rose 10 percent.
LODGING OPERATING INCOME soared 30 percent in the third quarter as a result of higher base and franchise fees, growth in incentive fees and strong timeshare profits. General and administrative expenses increased $23 million to $149 million and included a $6 million charge associated with the settlement of a litigation matter from 1998, $1 million for bedding program incentives, $1 million in company contributions for hurricane Katrina relief efforts, and $2 million in systems initiatives.
SYNTHETIC FUEL. Net income generated from the synthetic fuel joint ventures totaled $30 million in the third quarter. The ventures contributed earnings per share of $0.13 in both the 2005 and 2004 third quarters.
GAINS AND OTHER INCOME of $39 million in the third quarter ($18 million excluding synthetic fuel compared to $24 million in 2004) included $7 million of gains on the sale of real estate, $3 million of gains from the sale or refinancing of real estate loans, a $3 million gain on the sale of our interest in a joint venture and $5 million of preferred returns from two joint venture investments. The third quarter of 2004 included a $13 million gain on the disposition of Marriott's interest in the Two Flags joint venture.
INTEREST EXPENSE increased $1 million to $24 million. The company retired its $275 million Series D senior notes at maturity in April 2005 and issued $350 million in new Series F senior notes in June 2005.
INTEREST INCOME declined to $13 million in the third quarter of 2005 as the company continued to reduce its notes receivable balances. The provision for loan losses reflects a $17 million non-cash pre-tax charge associated with the impairment of a leveraged lease receivable from Delta Air Lines for an aircraft Marriott acquired and leased to Delta in 1994. In September, Delta filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code and informed the company of its desire to restructure the lease.
EQUITY IN EARNINGS/(LOSSES) reflects Marriott's share of income or losses from joint venture investments. In the third quarter of 2005, several of the hotels in which Marriott had an equity interest were sold. As a result, the company recognized $15 million from its share of the gains on those transactions. The company also benefited from higher results from the Courtyard joint venture and the newly formed joint venture with Whitbread.
Adjusted earnings before interest expense, taxes, depreciation and amortization (Adjusted EBITDA) rose 12 percent to $268 million in the third quarter. Total debt at the end of the third quarter of 2005 was $1,817 million and the cash balance totaled $161 million, compared to $1,325 million of debt and $770 million of cash at the end of 2004.
The company repurchased 8 million shares of common stock in the third quarter of 2005 at a cost of $531 million and has repurchased a total of 22.6 million shares year-to-date through October 5, 2005, at a cost of $1,457 million. The current remaining share repurchase authorization totals approximately 21 million shares.
FOURTH QUARTER 2005 OUTLOOK
The company expects lodging demand to remain strong and estimates 2005 fourth quarter systemwide North American REVPAR growth of 8 to 10 percent, with an approximately 150 basis point improvement in house profit margins. Under these assumptions the company expects fee revenue for the fourth quarter of 2005 to total approximately $320 million, an increase of 17 percent over 2004.
Timeshare interval sales and services revenue, net of direct expenses, should increase to a range of $60 million to $65 million in the fourth quarter 2005. The company also expects to complete a timeshare mortgage note sale transaction in the fourth quarter.
The company expects general, administrative and other expenses to total approximately $185 million in the fourth quarter, a decline of 17 percent compared to 2004. The comparison reflects the impact of the $13 million write-off of the investment in a management contract for the Courtyard joint venture in the fourth quarter of 2004.
Earnings per share from synthetic fuel are expected to total approximately $0.12 in the fourth quarter 2005, $0.02 lower than the 2004 fourth quarter results.
The company expects to open approximately 25,000 rooms (gross) during the full year 2005.
2006 OUTLOOK
The company expects North American REVPAR to increase 7 to 9 percent in 2006, roughly 75 percent of which should be rate driven. Assuming a 1.5 to 2.0 percentage point improvement in house profit margins, and 25,000 to 30,000 new room openings (gross), the company expects total fee revenue of $1,165 million to $1,185 million for the full year 2006.
Given the recent rise in oil prices, the uncertainty surrounding future oil prices, and the range of production alternatives which the company is evaluating, the company is unable to provide guidance for 2006 earnings from the synthetic fuel business.
Also not included in the company's 2006 earnings guidance at this time is the estimated $45 million pre-tax impact of the Financial Accounting Standards Board's Statement (FASB) No. 123®, requiring the expensing of all share based compensation (including stock options).
New accounting rules for the timeshare industry will take effect in 2006. The new rules will change the timing of our recognition of timeshare revenues, selling and product costs, reacquired timeshare inventory and maintenance fees for unsold timeshare inventory. Our estimate of the one-time impact to 2006 first quarter earnings will be a charge of approximately $150 million to $175 million pre-tax. Since this charge is a one-time item, and will be presented in the financial statements below income from continuing operations, we have also not included it in our 2006 earnings guidance.
Diluted earnings per share from continuing operations for 2006 is estimated to range from $3.00 to $3.10 (excluding the impact of FASB No. 123®, the one-time impact associated with the new timeshare accounting rules and the synthetic fuel business).
Under the above assumptions, the company currently estimates the following results for the fourth quarter, full year 2005 and full year 2006:
Fourth Quarter Full Year 2005 Full Year 2006
2005
Total fee revenue Approx. $320 Approx. $1,020 $1,165 million to
million million $1,185 million
Owned, leased, $55 million to $158 million to $150 million to
corporate $60 million $163 million $155 million
housing and
other, net
Timeshare $60 million to $263 million to Approx. $265
interval sales $65 million $268 million million
and services,
net of direct
expenses
General, Approx. $185 Approx. $648 $600 million to
administrative & million million $610 million
other expense(1)
Lodging operating $250 million to $793 million to $970 million to
income(1) $260 million $803 million $1,005 million
Gains(2) Approx. $55 Approx. $130 Approx. $100
(excluding million million million
synthetic fuel)
Net interest Approx. $25 Approx. $40 Approx. $80
expense(3) million million million
Equity in Approx. $5 Approx. $25 Approx. $25
earnings/ million million million
(losses)
Earnings per Approx. $0.12 Approx. $0.51 No guidance
share from
synthetic fuel
Earnings per $0.95 to $0.98 $3.09 to $3.12 No guidance
share(4)
Earnings per share $0.83 to $0.86 $2.58 to $2.61 $3.00 to $3.10
excluding
synfuel(4)
(1) Full year 2005 excludes the 2005 second quarter $94 million pre-tax
($0.26 per share) one-time charge associated with the CTF transaction.
(2) Includes timeshare mortgage note sale gains.
(3) Includes interest expense and provision for loan losses, net of
interest income (full year 2005 excludes the $17 million one-time
impairment charge related to an investment in a Delta Air Lines
leveraged aircraft lease).
(4) From continuing operations. Full year 2005 excludes $17 million
($0.05 per share) one-time impairment charge for the leveraged lease
and $94 million ($0.26 per share) one-time charge associated with the
CTF transaction. 2006 excludes charge associated with the new
timeshare accounting rules and $0.13 per share charge associated with
the adoption of FAS123R.
The company expects investment spending in 2005 to total approximately $1.1 billion, including $40 million for maintenance capital spending, $650 million for capital expenditures and acquisitions (including $368 million for the acquisition of the CTF properties), $100 million in new mezzanine financing and mortgage loans for hotels developed by owners and franchisees, and approximately $300 million in equity and other investments (including $170 million investment in the joint venture with Whitbread).
Investment spending in 2006 is expected to total $750 million, including $200 million for the timeshare business.
The telephone dial-in number for the conference call is 913-981-5542. A telephone replay of the conference call will also be available by telephone from 1 p.m. ET, Thursday, October 6, 2005 until Thursday, October 13, 2005 at 8 p.m. ET. To access the recording, call 719-457-0820. The reservation number for the recording is 5399439.
Note: This press release contains "forward-looking statements" within the meaning of federal securities laws, including REVPAR, profit margin and earning trends; statements concerning the number of lodging properties we expect to add in future years; our expected investment spending; anticipated results from our synthetic fuel operations; 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 pace and extent of the current recovery in both the economy and the lodging industry; supply and demand changes for our products; competitive conditions in the lodging industry; the availability of capital to finance hotel growth and refurbishment; the uncertain effect on our production plans of the potential reduction or elimination of projected future tax credits for synthetic fuel if average crude oil prices in 2006 exceed certain statutory thresholds; and other matters referred to in our most recent annual report on Form 10-K and quarterly report on Form 10-Q under the heading "Risks and Uncertainties"; 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 - News) is a leading lodging company with more than 2,700 lodging properties in the United States and 65 other countries and territories. Marriott International operates and franchises hotels under the Marriott, JW Marriott, Renaissance, Bulgari, The Ritz-Carlton, Courtyard, Residence Inn, SpringHill Suites, TownePlace Suites, and Fairfield Inn brand names; develops and operates vacation ownership resorts under the Marriott Vacation Club International, The Ritz-Carlton Club, Grand Residences by Marriott, and Horizons brands; operates Marriott Executive Apartments; provides furnished corporate housing through its Marriott ExecuStay division; operates conference centers; and manages golf courses. Marriott is also in the synthetic fuel business. The company is headquartered in metropolitan Washington, D.C. It is ranked as the lodging industry's most admired company and one of the best places to work for by Fortune® magazine. In fiscal year 2004, Marriott International reported sales from continuing operations of $10 billion, and the company had approximately 133,000 employees at year-end 2004. For more information or reservations, please visit our web site at http://www.marriott.com.