Marriott International, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. Marriott operates, franchises, and licenses lodging properties, primarily under an asset-light model. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Total revenue | $6.075B | $5.338B | $11.690B | $9.537B |
| Net fee revenue | $1.228B | $1.054B | $2.340B | $1.845B |
| Operating income | $1.096B | $950M | $2.047B | $1.508B |
| Net income | $726M | $678M | $1.483B | $1.055B |
| Diluted EPS | $2.38 | $2.06 | $4.81 | $3.20 |
| Operating cash flow | Not separately stated | Not separately stated | $1.538B | $1.048B |
Q2 revenue rose 14%, operating income 15%, net income 7%, and diluted EPS 16% year over year. First-half revenue increased 23%, operating income 36%, net income 41%, and diluted EPS 50%. First-half results benefited from a $103M release of tax reserves, primarily following completion of a prior-year tax audit. Revenue includes substantial cost reimbursements: Q2 reimbursement revenue was $4.457B and related reimbursed expenses were $4.366B. These largely pass-through amounts make total-revenue margins less informative. Reported operating income as a share of total revenue was approximately 18.0% in Q2 2023 versus 17.8% in Q2 2022, and 17.5% versus 15.8% for the first half.
Worldwide systemwide comparable RevPAR increased 13.5% in Q2 and 22.4% for the first half. International RevPAR rose 39.1% and 49.5%, respectively; U.S. & Canada increased 6.0% and 14.3%. Growth reflected stronger rates and occupancy, including recovery in Greater China as travel restrictions eased. Management said U.S. demand remained strong but was beginning to normalize year over year.
Cash, debt, and capital allocation
- Cash, cash equivalents, and restricted cash totaled $579M at June 30, 2023; cash and equivalents on the balance sheet were $563M.
- Total debt was $11.297B, including $894M current and $10.403B long-term, versus $10.064B at year-end 2022. Long-term debt had a 4.3% weighted-average interest rate and approximately 5.5-year weighted-average maturity. Interest expense rose 47% in Q2 to $140M.
- Marriott had a $4.5B revolving credit facility expiring in December 2027, supporting commercial paper and general corporate needs. Commercial paper outstanding was $1.641B. The company said it remained within its 4.5-to-1.0 maximum-leverage covenant and believed its liquidity sources were adequate.
- First-half investing cash outflow was $243M, including $194M in capital and technology expenditures and the $102M City Express acquisition. Financing cash outflow was $1.241B, including $2.046B of share repurchases and $281M of dividends, partly offset by debt and commercial-paper borrowings.
- Management expected 2023 capital expenditures and other investments of approximately $900M–$1.0B, including about $200M of maintenance capital spending. It expected full-year net room growth of 6.4%–6.7%, including an anticipated 2.4% contribution from the MGM Resorts agreement for rooms expected to join the system in Q4. No earnings guidance is provided in the filing.
Material developments, risks, and contingencies
- The May 2023 City Express brand acquisition cost $100M and added 149 properties, primarily in Latin America. At quarter-end, the system had 8,590 properties and 1.565M rooms; the development pipeline was nearly 547,000 rooms.
- The Starwood data-security incident remains subject to litigation and regulatory investigations. Marriott recorded an estimated loss contingency it described as not material, but said additional losses are reasonably possible and cannot be reasonably estimated; it expects significant future expenses. Management said it did not believe the incident would affect long-term financial health.
- The Sheraton Grand Chicago owner holds a put option to require Marriott to purchase the leasehold and hotel for $300M; the exercise period is in the first half of 2024, with closing expected in Q4 2024 if exercised. Marriott also has an option to buy the underlying land for an additional $200M.
- Recorded guarantee liabilities were $101M against $249M of maximum potential future guarantee fundings. Projected U.S. transition-tax payments totaled $245M, including $111M due within 12 months.
- Management highlighted economic uncertainty and the short lodging booking window, noting that demand trends can change quickly. It reported no material changes to the risk factors in its 2022 Form 10-K and no material change in market-risk exposure. Disclosure controls were assessed as effective.
Investor facts to verify
- Whether travel demand, especially international recovery and U.S. business and group demand, sustains RevPAR and fee-revenue growth.
- How much first-half earnings growth reflects ongoing operations versus the tax-reserve release, and how pass-through reimbursements affect interpretation of reported revenue and margins.
- Debt, commercial-paper usage, interest costs, and liquidity relative to planned repurchases, dividends, and the $900M–$1.0B investment outlook.
- Potential costs and timing of Starwood-related litigation and investigations, for which excess losses remain unestimable.
- Execution of the 2023 room-growth outlook, including the anticipated MGM-related additions, and any exercise of the Sheraton Grand Chicago put option.