Marriott International reports record 2005 fourth quarter earnings per share from continuing operations of $ 1.07; up 35% from the 2004 fourth quarter
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Marriott International reports record 2005 fourth quarter earnings per share from continuing operations of $ 1.07; up 35% from the 2004 fourth quarter
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Category: Worldwide -
This is a press release selected by our editorial committee and published online for free on 2006-02-10
Full Year Highlights:
• Record Full Year 2005 earnings per share totaled $2.89, up 17 percent from 2004;
• Full year management and franchise fee revenue exceeded $1 billion in 2005, 18 percent over the prior year and surpassing the previous peak reached in 2000;
• Incentive fees totaled $201 million during the year, 42 percent higher than 2004 levels. Approximately 50 percent of managed hotels generated incentive fees during 2005 compared to 32 percent in 2004;
• Full year 2005 worldwide systemwide comparable revenue per available room (REVPAR) rose 10.4 percent (9.9 percent using constant dollars) and worldwide company-operated house profit margins increased 180 basis points during the year;
• In North America, company-operated comparable REVPAR rose 9.8 percent during 2005 and house profit margins rose 160 basis points; Property-level EBITDA margins for comparable North American company-operated properties, calculated as if wholly owned, increased 200 basis points;
• Internet sales totaled $3.2 billion in 2005, 42 percent over 2004 levels. Nearly 85 percent of internet sales were booked on Marriott.com;
• Approximately 22,000 rooms opened in 2005, including nearly 9,000 full-service rooms under the Marriott Hotels & Resorts, Renaissance Hotels & Resorts and The Ritz-Carlton brands. Twenty-seven percent of total room openings were conversions from competitor brands. In addition, nearly 9,000 rooms franchised under Marriott flags converted to Marriott management during the year;
• At the close of the year, worldwide rooms approached the one-half million mark with a pipeline of over 70,000 rooms worldwide under construction, awaiting conversion, or approved for development;
• Marriott returned a record $1.65 billion to shareholders through the repurchase of nearly 26 million shares of the company’s common stock in 2005, $1 billion more than in the prior year;
• Marriott recycled more than $1.4 billion of capital in 2005, generating cash proceeds through notes receivable repayments and asset sales, including the sale of timeshare notes. At year-end, Marriott’s notes receivable balance, excluding timeshare notes, totaled $333 million compared to $942 million at year-end 2004;
• Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) was approximately $1,270 million in 2005, a 15 percent increase over 2004.
Fourth Quarter Highlights:
• Record fourth quarter 2005 earnings per share totaled $1.07, up 35 percent from the fourth quarter of 2004;
• Fourth quarter management and franchise fee revenue rose 19 percent over the prior year. Thirty-five percent of managed hotels generated incentive fees during the quarter compared to 31 percent in the prior year’s quarter;
• Worldwide systemwide comparable revenue per available room rose 11.2 percent (11.0 percent using constant dollars) and worldwide company-operated house profit margins increased 210 basis points during the quarter. Property-level EBITDA margins for comparable North American company-operated properties, calculated as if wholly owned, increased 250 basis points;
• Nearly 6,000 rooms opened during the fourth quarter including the 366-room Grand Cayman Ritz-Carlton and 1,600 rooms converted from competitor properties;
• Cash proceeds generated by notes receivable repayments and asset sales, including the sale of timeshare notes, totaled $587 million and share repurchases totaled $334 million.
Marriott International, Inc. (NYSE:MAR) today reported record diluted earnings per share from continuing operations (EPS) of $1.07 in the fourth quarter of 2005, up 35 percent from the fourth quarter of 2004. Income from continuing operations, net of taxes, for the quarter was $237 million, a 26 percent increase over the prior year. Excluding the impact of our synthetic fuel business, income from continuing operations increased 32 percent to $204 million and diluted earnings per share increased 42 percent to $0.92 during the quarter.
J.W. Marriott, Jr., Marriott International chairman and chief executive officer, said, “Strong worldwide economic expansion and impressive lodging industry strength continued in the fourth quarter, and Marriott International capitalized on those trends through increasingly favorable financial performance.
“Across all travel segments, group, business transient and leisure, revenues remained strong in the quarter. Meeting attendance was solid and group spending was robust. Catering revenues rose 13 percent during the quarter with particularly impressive demand from financial services and pharmaceutical businesses. Business guests continued to fill hotels. Manhattan REVPAR rose 16 percent largely due to a greater mix of corporate rated business and higher room rates. Technology rebounded, driving demand higher in San Francisco and the suburbs of Boston. Business travel to and especially within Asia continues to thrive. In China alone, Marriott currently operates 32 hotels, with 14 properties under construction, and additional projects in the development pipeline.
“The resort business in the Caribbean exceeded expectations, as leisure travel continues to boom. Our Ritz-Carlton brand just opened a spectacular resort on Grand Cayman Island, and we anticipate significant additional expansion opportunities in the region. In total, 16 Ritz-Carlton hotels, many in resort destinations, are currently in the development pipeline, including 11 which are under construction.
“Marriott and its owners invested record amounts in product improvements and renovations throughout our system in 2005, including new bedding for over 600,000 beds. Guest satisfaction scores and REVPAR improved dramatically in 2005, reflecting renovations over the past three years, including 129 Courtyard hotels and 95 Residence Inns. An additional 43 Courtyards and 24 Residence Inns are scheduled for renovation in 2006.
“We expect to deliver another year of outstanding results in 2006. U.S. industry supply growth is expected to remain modest while lodging demand continues to strengthen. Given the strength of the industry and the outstanding quality of our products, we believe our North American company-operated REVPAR should increase 8 to 10 percent in 2006.”
In the 2005 fourth quarter (16 week period from September 10, 2005 to December 30, 2005), REVPAR for the company’s comparable worldwide systemwide properties increased 11.2 percent (11.0 percent using constant dollars). Systemwide North American REVPAR increased by 11.0 percent in the fourth quarter of 2005, driven by a 7.8 percent increase in average daily rate and a 2 percentage point increase in occupancy to 70.7 percent. REVPAR at the company’s comparable systemwide North American full-service hotels (including Marriott Hotels & Resorts, The Ritz-Carlton, and Renaissance Hotels & Resorts) increased by 11.3 percent during the quarter. North American systemwide REVPAR for the company’s comparable select-service and extended-stay brands (including Courtyard, Fairfield Inn, Residence Inn, TownePlace Suites, and SpringHill Suites) increased 10.6 percent.
In the fourth quarter, international systemwide comparable REVPAR increased 11.9 percent (11.0 percent using constant dollars) including a 9.9 percent increase in average daily rates and a 1.3 percentage point improvement in occupancy to nearly 75 percent. REVPAR showed dramatic improvements in Hong Kong, China and Dubai.
The company added 38 hotels and timeshare resorts (5,980 rooms) to our worldwide lodging portfolio during the fourth quarter of 2005, while four properties (679 rooms) exited the system. At year-end, the company’s lodging group encompassed 2,741 hotels and timeshare resorts (499,165 rooms).
MARRIOTT REVENUES totaled $3.6 billion in the 2005 fourth quarter, a 16 percent increase from the same period in 2004. Base and franchise fees also rose 16 percent. Incentive management fees soared 33 percent as a result of robust growth in REVPAR and higher property level house profit margins. In the prior year’s quarter, Marriott recognized $7 million in incentive fees that were calculated based on prior period results, but not earned and due until the fourth quarter of 2004. Comparable company-operated house profit margins increased 210 basis points during the quarter, both worldwide and in North America, despite dramatically higher energy costs. Property level EBITDA margins for comparable North American company-operated properties, calculated as if wholly owned, increased 250 basis points.
Timeshare interval sales and services revenue increased 18 percent in the fourth quarter of 2005. Timeshare contract sales, including sales made by joint venture projects, increased 6 percent, reflecting strong sales at our timeshare resorts in St. Thomas, Las Vegas and Paris, as well as strong whole-ownership sales at our Grand Residences by Marriott in Panama City, Florida. Contract sales were lower at Ritz-Carlton Club resorts in St. Thomas and Bachelor Gulch, Colorado. These resorts continue to experience strong demand but offer limited inventory as they near sell-out. Seven new resorts offering timeshare, fractional or whole ownership products are expected to begin sales in 2006 including the Ritz-Carlton projects in San Francisco, Miami Beach, Kapalua and Kauai.
LODGING OPERATING INCOME for the fourth quarter of 2005 was $250 million, up from $146 million a year ago. Marriott’s 2005 fourth quarter lodging operating income benefited from strong fee growth as well as increased profits from owned and leased properties the company acquired in 2005. The company’s results included a $7 million charge in connection with the write-off of previously capitalized costs for one timeshare project. General and administrative expenses were also lower. The 2004 quarter included a $13 million charge associated with the Courtyard joint venture transaction.
SYNTHETIC FUEL operations contributed approximately $0.15 per share of after-tax earnings during the 2005 fourth quarter compared to $0.14 in the year ago quarter. Excluding the impact of our synthetic fuel operations, our tax rate for continuing operations was approximately 35 percent in the fourth quarter of 2005.
GAINS AND OTHER INCOME (excluding $12 million from synthetic fuel) totaled $72 million and included a $40 million gain from a fourth quarter timeshare mortgage note sale, a $17 million gain on the Courtyard land sale, $5 million of gains from the sale of other real estate, $6 million of preferred returns from joint venture investments and a $4 million gain on the sale of an equity interest in an international joint venture. Prior year gains of $69 million included a $36 million gain from a timeshare mortgage note sale, a $5 million gain associated with the repayment of a note, and $28 million of gains primarily related to the sale of real estate, our interest in an international joint venture and the disposition of the Ramada International business.
INTEREST EXPENSE increased $7 million primarily due to higher commercial paper balances, partially offset by changes in the company’s senior debt in 2005.
INTEREST INCOME totaled $14 million during the quarter, down from $48 million in the year ago quarter, primarily driven by loan repayments in 2005 and in the fourth quarter of 2004.
EQUITY IN (LOSSES)/EARNINGS – OTHER reflects Marriott’s share of income or losses from joint venture investments. During the fourth quarter 2005, the company earned a $15 million profit associated with the disposition of a hotel by a joint venture in which Marriott had an equity interest. Results also reflected improved profitability of joint venture hotels benefiting from higher property REVPAR. The company also benefited from the recapitalization of the Courtyard joint venture.
FULL YEAR 2005 RESULTS
For the full year 2005 EPS totaled $2.89, up 17 percent from 2004. Income from continuing operations, net of taxes, for the year was $668 million, a 12 percent increase over 2004 levels. Synthetic fuel operations contributed approximately $125 million ($0.54 per share) in 2005 versus $107 million ($0.44 per share) in the prior year. The guidance provided by the company on October 6, 2005, for fiscal year 2005 excluded the $94 million pre-tax ($0.27 per share) one-time charge associated with the CTF transaction, recorded in the 2005 second quarter, and the $17 million ($0.05 per share) pre-tax charge related to an impairment in a Delta Airlines leveraged aircraft lease, recorded in the 2005 third quarter. Excluding these items, 2005 EPS was $3.21, up 30 percent, and income from continuing operations, net of taxes, was $741 million, up 25 percent over 2004 levels.
LODGING OPERATING INCOME increased 22 percent from 2004 levels to $699 million, largely as a result of higher base and franchise fees, growth in incentive fees, favorable timeshare profits and strong results from our owned and leased properties, partially offset by higher general and administrative expenses. Marriott’s general and administrative expenses increased 24 percent to $753 million, driven by $94 million of pre-tax charges associated with the CTF transaction, primarily due to the non-cash write-off of management agreements, $30 million for bedding incentives, a $12 million payment made in the second quarter to retain a management agreement and a $6 million charge recorded in the third quarter associated with the settlement of a litigation matter from 1998, partially offset by an overall decline in litigation costs.
GAINS AND OTHER INCOME of $149 million in 2005 (excluding $32 million for synthetic fuel) included $69 million from timeshare mortgage note sales, $34 million from the sale of real estate, $25 million of gains from the sale or refinancing of real estate loans, $14 million of preferred returns from several joint venture investments and $7 million of gains on the sale of the company’s interests in two joint ventures. Prior year gains of $136 million (excluding $28 million for synthetic fuel) included $64 million from the sale of timeshare mortgage notes, $50 million related to the sale of real estate and our interest in an international joint venture, a $17 million gain on the disposition of Marriott’s interest in the Two Flags joint venture and the Ramada International business, and a $5 million gain associated with the repayment of principal and interest of a mezzanine loan to a joint venture.
INTEREST INCOME declined $67 million in 2005 to $79 million as the company reduced its notes receivable balance in 2005, excluding timeshare notes, by $609 million. The provision for loan losses reflected a $17 million non-cash pre-tax charge associated with the impairment of a Delta Airline leveraged lease receivable and an $11 million reserve for a loan at one property.
BALANCE SHEET
With record earnings, loan repayments and asset sales, Marriott generated significant cash flow in 2005. At the end of 2005, total debt was $1,737 million and cash balances totaled $203 million compared to $1,325 million in debt and $770 million of cash at the end of 2004. The company also repurchased a record 26 million shares of common stock in 2005 at a cost of $1.65 billion. The remaining share repurchase authorization, as of year-end 2005, totaled approximately 17.9 million shares.
OUTLOOK
The company expects North American company-operated REVPAR to increase 8 to 10 percent in 2006, roughly 80 percent of which should be rate driven. Assuming a 150 to 200 percentage point improvement in house profit margins, and approximately 25,000 new room openings (gross), the company expects total fee revenue of $1,165 million to $1,185 million, an increase of 13 to 15 percent.
Given the recent rise in oil prices and the uncertainty surrounding the availability of 2006 tax credits, the company suspended production at its four synthetic fuel facilities in mid-January 2006. The company has not yet determined the duration of the temporary shut down and as such is unable to provide guidance for 2006 earnings from the synthetic fuel business. The current net book value of the four facilities is $19 million.
New accounting rules for the timeshare industry take effect in 2006. The new rules change the timing of the recognition of timeshare revenues, selling and product costs, reacquired timeshare inventory and maintenance fees for unsold timeshare inventory. At the same time, the attractive cash flow characteristics of the timeshare business will remain unchanged. The company’s estimate of the one-time non-cash impact to 2006 first quarter earnings will be an after-tax charge of approximately $110 million to $115 million ($0.50 to $0.53 per share). Since this charge is a one-time item, and will be presented in the financial statements below income from continuing operations, it is not included in the 2006 earnings guidance.
Timeshare interval sales and services revenues, net of expenses are expected to decline approximately 2 percent in 2006, reflecting soft contract sales in 2005 resulting from limited inventory. Contract sales (including joint venture sales) are expected to increase over 40 percent in 2006, as the company continues to experience strong sales from highly successful projects in Aruba, Newport Coast, Las Vegas and Hawaii and begins sales in 2006 at seven new resorts offering timeshare, fractional or whole ownership products.
General, administrative and other expenses are expected to decline approximately 12 to 14 percent in 2006 to $650 million to $660 million from $753 million in 2005. The comparison reflects the impact of the $94 million charge associated with the CTF transaction in the second quarter of 2005 and $30 million in bedding incentives also recorded in 2005. This 2006 guidance includes the $44 million pre-tax impact of the Financial Accounting Standards Board’s Statement (FAS) No. 123(R), requiring the expensing of all share-based compensation (including stock options).
Given these above items, the company estimates that lodging operating income will total $910 million to $940 million in 2006, an increase of 30 to 34 percent over 2005 (20 to 24 percent excluding the $94 million charge associated with the CTF transaction in 2005 and the expected $44 million impact of FAS No. 123(R) in 2006).
The company expects lodging gains and other income to total approximately $130 million in 2006 (including approximately $70 million in timeshare mortgage note sale gains), compared to $149 million in 2005.
Net interest expense is expected to total $75 million, an increase of $20 million, primarily driven by loan repayments in 2005 resulting in reduced interest income.
The company estimates North American company-operated REVPAR growth of 8 to 10 percent in the first quarter of 2006, with house profit margin growth of 150 to 200 basis points.
Under the above assumptions, the company currently estimates the following results for the first quarter and full year 2006:
First Quarter 2006 Full Year 2006
Total fee revenue $250 million to $260 million $1,165 million to $1,185 million
Owned, leased, corporate housing and other, net of direct expenses Approx. $45 million Approx. $150 million
Timeshare interval sales and services, net of direct expenses $65 million to $70 million Approx. $255 million
General, administrative & other expense1 $140 million to $145 million $650 million to $660 million
Lodging operating income1 $215 million to $235 million $910 million to $940 million
Gains (excluding synthetic fuel) Approx. $30 million Approx. $130 million2
Net interest expense3 Approx. $20 million Approx $75 million
Equity in earnings/(losses) Approx. $0 Approx. $15 million
Earnings per share from synthetic fuel No guidance No guidance
Earnings per share excluding synfuel1,4 $0.67 to $0.73 $2.95 to $3.05
Earnings per share excluding synfuel and impact of FAS123(R) adoption4,5 $0.70 to $0.76 $3.08 to $3.18
1 Full Year 2006 includes pre-tax charge of $44 million ($0.13 per share) associated with the adoption of FAS No. 123(R) ($9 million ($0.03 per share) for the 2006 first quarter).
2 Includes timeshare mortgage note sale gains.
3 Net of interest income.
4 From continuing operations before cumulative effect of a change in accounting principle associated with the new timeshare accounting rules. The company expects to record an after-tax charge of $110 million to $115 million ($0.50 to $0.53 per share) in the 2006 first quarter.
5 Full Year 2006 excludes pre-tax charge of $44 million ($0.13 per share) associated with the adoption of FAS No. 123(R) ($9 million ($0.03 per share) for the 2006 first quarter).
The company expects investment spending in 2006 to total approximately $900 million, including $50 million for maintenance capital spending, $500 million for capital expenditures, acquisitions and timeshare development, $30 million in new mezzanine financing and mortgage loans for hotels developed by owners and franchisees, and approximately $320 million in equity and other investments (including timeshare equity investments).
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