Marriott International, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Comparisons are with Q1 2022 unless otherwise noted. Amounts are in millions of dollars except per-share data and operating statistics.
Business context and operating performance
Marriott operates, franchises, and licenses lodging properties, primarily under an asset-light model. Its reportable segments are U.S. & Canada and International. Global lodging demand strengthened as pandemic-related disruption eased, with particularly strong international recovery after travel restrictions were lifted in Asia Pacific. Marriott ended the quarter with 8,353 properties and 1.534 million rooms, up from 8,288 properties and 1.525 million rooms at year-end 2022.
- Worldwide systemwide comparable RevPAR rose 34.3% to $116.45, driven by 11.3% higher ADR and an 11.2 percentage-point occupancy increase to 65.3%.
- U.S. & Canada RevPAR increased 25.6%; International RevPAR increased 63.1%.
- The development pipeline totaled approximately 502,000 rooms, including roughly 200,000 under construction.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $5,615 | $4,199 |
| Net fee revenue | $1,112 | $791 |
| Operating income | $951 | $558 |
| Net income | $757 | $377 |
| Diluted EPS | $2.43 | $1.14 |
| Operating cash flow | $887 | $398 |
| Capital and technology expenditures | $95 | $49 |
Reported operating margin was approximately 16.9%, versus 13.3% in Q1 2022; reported revenue includes substantial cost-reimbursement revenue and matching expenses. Cost-reimbursement revenue was $4,147 and reimbursed expenses were $4,136 in Q1 2023. Interest expense increased to $126 from $93. The effective tax rate fell to 10.3% from 20.7%, primarily reflecting a $103 release of tax reserves associated mainly with completion of a prior-year tax audit.
At March 31, 2023, cash and equivalents were $554 on the balance sheet ($571 including restricted cash in the cash-flow statement). Total debt was $10,657, versus $10,064 at year-end 2022; long-term debt had a 4.2% weighted average interest rate and approximately 5.8-year weighted average maturity. The current ratio was 0.5 to 1.0. Marriott cited its $4.5 billion revolving credit facility, capital-markets access, and operating cash generation as adequate for anticipated liquidity needs; it reported compliance with its credit-facility covenants.
Material changes, outlook, and capital allocation
- Net income approximately doubled year over year, while net fee revenue increased 41%. Segment profit rose 45% in U.S. & Canada and 92% Internationally.
- Operating cash flow increased by $489, primarily due to higher earnings and working-capital timing.
- Marriott issued $800 of 4.9% Series KK Notes due 2029 in March. Share repurchases totaled $1.1 billion for 6.8 million shares; the company paid a $0.40-per-share dividend.
- Management expects 2023 gross rooms growth of approximately 5.5% and net rooms growth of 4.0%–4.5%. It expects full-year capital expenditures and other investments of approximately $850–$1,000, including about $250 for maintenance.
- Management said demand remained strong but cautioned that booking windows are short and lodging trends can change quickly. It expects to continue returning cash through repurchases and dividends.
- On May 1, 2023, after quarter-end, Marriott completed its $100 acquisition of the City Express brand portfolio, adding approximately 150 properties in Mexico, Costa Rica, Colombia, and Chile.
Risks, contingencies, and unusual items
- Starwood data-security incident: Consumer litigation and government investigations remain ongoing. Marriott considers losses probable in connection with regulatory matters and recorded an estimate in 2022 that it says is not material; additional losses are reasonably possible but not reasonably estimable. The company expects significant future expenses and says insurance may not cover all losses.
- Hotel guarantees: Maximum potential future fundings for guarantees were $260, with $108 recorded as a liability. A separate $300 liability relates to the Sheraton Grand Chicago put option; the owner may exercise it in the first half of 2024, with expected closing in Q4 2024.
- Tax matters: Unrecognized tax benefits were $156 at quarter-end. The company says examinations in one or more jurisdictions may be resolved within 12 months, but the amount of any change is uncertain. Projected transition-tax payments were $326, including $84 due within 12 months.
- Marriott stated that its risk factors and market-risk exposure had not materially changed from its 2022 Form 10-K. Interim results may not indicate full-year performance.
Important facts for investors to verify
- Whether lodging demand, RevPAR gains, and management’s 2023 room-growth expectations persist, particularly given short booking windows.
- The sustainability of earnings growth and the effect of the lower effective tax rate, which benefited from a tax-reserve release.
- Debt, refinancing, and liquidity developments, including commercial-paper market access and the planned investment and shareholder-return spending.
- Future financial exposure from the Starwood incident and the timing and potential cost of the Sheraton Grand Chicago put option.
- Whether the City Express acquisition delivers the expected portfolio growth and how its results are reflected in subsequent filings.