Marriott International, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; unaudited. Marriott operates, franchises, and licenses lodging brands, primarily through an asset-light model. Unless stated otherwise, financial amounts are in millions of dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $5,928 | $5,313 | $17,618 | $14,850 |
| Net fee revenue | $1,174 | $1,037 | $3,514 | $2,882 |
| Operating income | $1,099 | $958 | $3,146 | $2,466 |
| Net income | $752 | $630 | $2,235 | $1,685 |
| Diluted EPS | $2.51 | $1.94 | $7.32 | $5.13 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $2,419 | $1,922 |
Q3 total revenue rose 12% and operating income 15% year over year; nine-month revenue rose 19% and operating income 28%. Reported operating margin was approximately 18.5% for Q3 (versus 18.0%) and 17.9% for the nine months (versus 16.6%). These ratios use total reported revenue, which includes substantial cost-reimbursement revenue largely offset by reimbursed expenses; they are not a measure of hotel-level margins. Q3 diluted EPS increased 29%; nine-month diluted EPS increased 43%.
Worldwide comparable systemwide RevPAR increased 8.8% in Q3 and 17.5% for the nine months, supported by higher ADR and occupancy. International RevPAR rose 21.8% and 38.7%, respectively; U.S. & Canada RevPAR rose 4.3% and 10.8%. Nine-month segment profit was $2,120 for U.S. & Canada and $865 for International.
Cash, debt, and capital allocation
- At September 30, cash and equivalents were $717; cash, cash equivalents, and restricted cash totaled $743. Current assets were $3,682 and current liabilities $7,677, a current ratio of 0.5 to 1.0.
- Total debt was $11,768, including $973 of commercial paper; this compares with $10,064 at December 31, 2022. Long-term debt had a 4.4% weighted-average interest rate and approximately 5.2-year weighted-average maturity. The $4.5 billion revolving credit facility expires December 2027; no facility borrowings were outstanding.
- Nine-month investing cash outflow was $363, including $318 of capital and technology expenditures and the City Express acquisition. Financing cash outflow was $1,838, including $2,988 of share repurchases and $435 of dividends. Cash increased $218 over year-end 2022.
- Management said the credit facility, capital-market access, and expected operating cash flow were adequate for liquidity needs. It reported compliance with the facility’s maximum-leverage covenant of 4.5 to 1.0.
Material changes, outlook, and risks
- Higher lodging demand drove fee growth; incentive management fees rose 35% in Q3 and 57% for the nine months. Interest expense rose to $146 in Q3 and $412 for the nine months, reflecting higher rates, commercial paper borrowings, and debt balances.
- Marriott acquired the City Express brand portfolio for $100, adding 149 properties. At quarter-end, its system had 8,675 properties and 1.581 million rooms, with nearly 557,000 rooms in the development pipeline. Management expected 2023 net rooms growth of approximately 4.2%–4.5%, excluding rooms expected from the MGM Resorts licensing agreement, which were anticipated in early 2024.
- Management forecast full-year 2023 capital expenditures and other investments of approximately $900–$950, including about $200 of maintenance capital spending. It expected to continue returning cash through repurchases and dividends; no earnings guidance was provided in the supplied filing text.
- Management cited strong demand in most markets but cautioned that the booking window is short and trends can change quickly with economic, geopolitical, and other conditions. U.S. RevPAR growth was stabilizing year over year.
- The Starwood data-security incident remains subject to litigation and regulatory discussions. The company recorded an estimated regulatory loss accrual described as not material, but said additional losses are reasonably possible and cannot be reasonably estimated; future legal and other costs are expected. Insurance may not cover all costs.
- A $300 cash put option for the Sheraton Grand Chicago leasehold may be exercised in the first half of 2024, with an expected closing in Q4 2024; Marriott may separately purchase the underlying land for $200. Guarantee obligations had a maximum potential funding amount of $221, with $89 recorded as liabilities.
- Other notable items: a $24 gain on a hotel sale supported Q3 and nine-month results; a prior-year leased-hotel payment affected comparisons. The effective tax rate was 23.9% in Q3 and 20.1% for the nine months, influenced by tax-audit outcomes and reserve releases.
Important facts for investors to verify
- Whether RevPAR and demand growth persist, particularly in the U.S. & Canada, and whether room-growth and pipeline targets are achieved.
- Debt refinancing, interest expense, commercial-paper market access, and liquidity given the 0.5 current ratio and substantial buybacks.
- Potential financial exposure from Starwood-related litigation and regulatory matters, and the status of the Sheraton Grand Chicago put option.
- Whether full-year investment spending and expected 2023 net rooms growth remain on plan; the filing provides no earnings outlook.