Marriott International (MAR, Financial), the $37 billion Maryland-based hotel and time-share properties operator, reported impressive revenue and profit growth figures for the first half with 48% and 67% year-over-year growth rates compared to a year ago.
Marriott generated $779 million in profits in revenues of $11.4 billion having raised its diluted earnings per share by 12.2% to $2.02.
In addition, the company provided several guidance figures including its full-year 2017 expectations of earnings-per-share in the range of $4.06 to $4.18. This compares to a per share figure of $2.64 in 2016.
According to its recent quarterly filing, Marriott’s results reflected a year-over-year increase in the number of properties in its system, including those from the Starwood combination, favorable demand for its brands in many markets around the world and slow but steady economic growth.
"We posted solid performance in the second quarter of 2017. Worldwide comparable systemwide constant dollar RevPAR increased more than 2% with particularly strong transient demand in the Europe and Asia Pacific regions. Strong RevPAR in London, Shanghai and Barcelona reflected surging demand for those markets. In North America, systemwide occupancy exceeded 78% and Hawaii, Orlando, Toronto and Montreal reported robust RevPAR gains.
"Worldwide house profit margins for company-operated hotels increased 50 basis points in the quarter, exceeding 39%, benefiting from higher RevPAR and synergies from the Starwood acquisition.
"Integration of the Starwood transaction is on track. We've rolled out Guest Voice to measure guest feedback, introduced SPG Mobile check in and check out in North America and achieved procurement and OTA cost savings.
"While integrating, we are also innovating. Today, we announced a joint venture agreement with Alibaba (BABA, Financial), the largest e-commerce platform in the world with over 500 million active mobile users, to develop a travel storefront that leverages Alibaba's digital travel platform, retail expertise and digital payment platform, Alipay. We expect that this joint venture will increase Chinese travel to our hotels worldwide, grow membership of our loyalty programs and reduce our distribution costs.
"We remain committed to delivering outstanding profit growth and maximizing total shareholder returns. Year to date, we've repurchased 16.0 million shares for approximately $1.5 billion, and we expect to return roughly $2.5 billion to our shareholders through share repurchases and dividends in 2017."Â –Â Arne M. Sorenson, president and CEO of Marriott International
Â
Valuations
Marriott is overvalued compared to peers. The company had a trailing price-earnings (P/E) ratio of 34.8 times vs. the industry average of 19.7 times, a price-book (P/B) ratio of 7.6 times vs. 7.1 and a price-sales (P/S) ratio of 1.7 times vs. 2.
The company also had a trailing dividend yield of 1.2% with 43% payout ratio.
Average 2017 revenue and earnings-per-share estimates indicated forward multiples of 1.7 times and 24.2 times.
Total returns
Marriott has outperformed the broader Standard & Poor's 500 index so far this year with 20.98% total gains vs. the index’s 10.4%.
Marriott International
Marriott International was organized as a corporation in 1997 and became a public company in 1998 when it was spun off as a separate entity by the company formerly named Marriott International Inc.
Marriott operates, franchises or licenses 6,080 properties worldwide with 1,190,604 rooms as of year-end 2016. The company believes that its portfolio of brands is the largest and most compelling range of brands and properties of any lodging company in the world.
Marriott is a worldwide operator, franchiser and licenser of hotels and time-share properties under numerous brand names at different price and service points. The company also operates, markets and develops residential properties and provides services to home/condominium owner associations.
The following table shows Marriott’s principal brands:
(10-K)
At year-end 2016, Marriott operated 1,821 properties (521,552 rooms) under long-term management agreements with property owners, 48 properties (10,933 rooms) under long-term lease agreements with property owners and 22 properties (9,906 rooms) that Marriott owns. In addition, the company operated under long-term management agreements 44 home and condominium communities (5,179 units) for which it manages the related owners’ associations.
At year-end 2016, Marriott had 4,006 franchised properties (614,405 rooms), 100 unconsolidated joint venture properties (13,106 rooms) and 83 licensed time-share, fractional and related properties (20,702 units).
In September 2016, Marriott completed its $13 billion acquisition of Starwood Hotels & Resorts Worldwide, creating the world’s largest hotel company.
As of year-end 2016, Marriott had three business segments: North American Full-Service, North American Limited-Service and International.
In the first half, Marriott had four: North American Full-Service, North American Limited-Service, Asia Pacific and other International.
North American Full-Service
North American Full-Service includes its Luxury and Premium brands (JW Marriott, The Ritz-Carlton, W Hotels, The Luxury Collection, St. Regis, EDITION, Marriott Hotels, Sheraton, Westin, Renaissance Hotels, Le Méridien, Autograph Collection Hotels, Delta Hotels, Gaylord Hotels and Tribute Portfolio) located in the U.S. and Canada.
In the first half, revenue in the Full-Service business jumped 53.7% year over year to $7.2 billion (65% of unadjusted sales) and segment profit margin of 8.6% vs. 7.6% in the year prior.
Metrics (RevPAR, Occupancy and Average Daily Rate) for systemwide North American properties
RevPAR
Revenue per Available Room (RevPAR), which is calculated by dividing room sales for comparable properties by room nights available for the period, is a meaningful indicator of its performance because it measures the period-over-period change in room revenues for comparable properties.
RevPAR for Full Service in the first half grew 2.4% year over year to $144.78.
Occupancy
Occupancy is calculated by dividing occupied rooms by total rooms available and measures the utilization of a property’s available capacity.
In the first half, Occupancy rose by 60 basis points to 74.5% year over year.
Average Daily Rate
Average Daily Rate is calculated by dividing property room revenue by total rooms sold, measures average room price and is useful in assessing pricing levels.
In the first half, average daily rate climbed 1.6% year over year to $194.34.
North American Limited-Service
North American Limited-Service includes Select brands (Courtyard, Residence Inn, Fairfield Inn & Suites, SpringHill Suites, Four Points, Towne Place Suites, Aloft Hotels, AC Hotels by Marriott, Element Hotels and Moxy Hotels) located in the U.S. and Canada.
In the first half, Limited-Service revenue grew 12.5% year over year to $1.96 billion (18% of unadjusted sales) and segment margin 20.5% vs. 20% in the year prior.
Metrics (RevPAR, Occupancy and Average Daily Rate) for systemwide North American properties
RevPAR
In the first half, systemwide limited-service RevPAR figure grew 1.5% year over year to $97.67.
Occupancy
Occupancy rate increased by 30 basis points to 74.2% in the first half.
Average Daily Rate
Average daily rate rose by 1.1% year over year to $131.71.
International
International includes JW Marriott, The Ritz-Carlton, W Hotels, The Luxury Collection, St. Regis, EDITION, BulgariHotels &Resorts, Marriott Hotels, Sheraton, Westin, Renaissance Hotels, Le Méridien, Autograph Collection Hotels, Marriott Executive Apartments, Tribute Portfolio, Courtyard, Residence Inn, Fairfield Inn & Suites, Four Points, Aloft Hotels, ACHotels by Marriott, Protea Hotels, Element Hotels and Moxy Hotels located outside the U.S. and Canada.
Asia Pacific
Revenue in the Asia Pacific rose by 120% year over year to $631 million (18% of unadjusted sales) and margins of 29.2% vs. 18.8% in the year prior.
Metrics (RevPAR, Occupancy and Average Daily Rate) for systemwide International properties
RevPAR
In the first half, RevPAR in Asia Pacific increased by 5.8% year over year to $97.36.
Occupancy
Occupancy increased by 5% to 70.4%.
Average Daily Rate
Average daily rate declined by (-)1.7% to $138.23.
Other International
Includes Caribbean & Latin America, Europe and Middle East & Africa
Metrics (RevPAR, Occupancy and Average Daily Rate) for systemwide International properties
RevPAR
RevPaR in the first half grew 3.7% year over year to $111.15.
Occupancy
Occupancy rose by 2% to 66.6%.
Average Daily Rate
Daily rate increased 0.7% to $166.93.
Sales and profits
In the past three years, Marriott registered revenue growth average of 10.12%, profit growth average of 7.6% and profit margin average of 5.32%.
Cash, debt and book value
As of June, Marriott had $498 million in cash and cash equivalents and $8.3 billion in debt with a debt-equity ratio of 1.7 times vs. (-)1.3 times in the year prior brought by negative equity. Overall debt climbed $3.95 billion while equity rose by $8.36 billion.
Of Marriott’s $23.88 billion assets 72.7%Â were identified as goodwill and intangibles while book value has turned positive to $4.9 billion compared with (-)$3.46 billion a year earlier.
Cash flow
In the first half, Marriott’s cash flow from operations rose 51% year over year to $1.3 billion brought by higher profits and cash flow from its depreciation/amortization, share-based compensation, income taxes and liability for guest loyalty programs.
Capital expenditures were $104 million leaving Marriott with $1.2 billion in free cash flow compared with $784 million a year earlier. Meanwhile, the company provided 1.3 times its free cash flow in dividends and repurchases while allocated $330 million in debt and credit facility repayments (net issuances).
The cash flow summary
In the past three years, Marriott allocated $1.18 billion in capital expenditures, raised $3.44 billion in debt (net repayments and other financing activities) and $252 million in share issuances, generated $3.06 billion in free cash flow and provided $4.85 billion in dividends and repurchases at a payout ratio average of 173%.
Conclusion
Recent first-half results exhibited very strong business growth if not further domination in the field by Marriott International. The company’s acquisition of Starwood last year helped push Marriott to become the largest hotel company in the world.
Despite these impressive growth figures, Marriott has accumulated more debt in recent years accompanied by a healthy dose of goodwill and intangibles at 73% of assets while having maintained overly generous payouts to shareholders of what is left with its cash flow in recent years averaging 173% of free cash flow.
Investors should probably look forward to Marriott allocating more of its cash flow in debt reduction moving forward.
Analysts recommended an overweight on Marriott with an average price target of $108.05 vs. $99.69 at the time of writing. Using average revenue estimates and 3-year P/S average with 20% margin indicated a per share figure of $74.
In summary, Marriott is a pass.
Disclosure: I do not have shares in any of the companies mentioned.
