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Marriott International, Inc. 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.
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.
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).
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
