MARRIOTT INTERNATIONAL INC quarterly report, Q3 FY2022

Full document

Marriott International, Inc. — Q3 2022 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2022. Unaudited interim results. Marriott operates, franchises, and licenses hotels and related properties, with U.S. & Canada and International as reportable segments; it owns relatively few lodging properties.

Financial performance

MetricQ3 2022Q3 2021Nine months 2022Nine months 2021
Total revenue$5.313B$3.946B$14.850B$9.411B
Operating income$958M$545M$2.466B$1.115B
Net income$630M$220M$1.685B$631M
Diluted EPS$1.94$0.67$5.13$1.92
Operating margin18.0%13.8%16.6%11.8%

Revenue increased 35% in Q3 and 58% year to date; operating income and net income also rose substantially. Reported revenue includes cost-reimbursement revenue ($3.931B in Q3 and $10.997B year to date), substantially offset by reimbursed expenses. Calculated operating margins use reported revenue, including these reimbursements.

  • Fees: Q3 net fee revenue was $1.037B, up 37%; year-to-date it was $2.882B, up 59%. Growth reflected the lodging recovery, higher incentive fees, co-brand card fees, and room additions.
  • Cash flow: Operating cash flow was $1.922B for the first nine months, versus $745M a year earlier. Investing used $137M; financing used $2.138B. Cash, cash equivalents, and restricted cash ended at $1.068B, down $353M from year-end 2021.
  • Debt and liquidity: Total debt was $9.418B, including $558M current, versus $10.138B at December 31, 2021. The $4.5B revolving facility had no borrowings at quarter-end and expires in June 2024. Marriott said it met its covenants and believed cash, the facility, and capital-market access were adequate. Current assets were $3.684B and current liabilities $7.112B; the reported current ratio was 0.5 to 1.0.
  • Capital returns and spending: Share repurchases totaled $1.235B and dividends $195M in the first nine months. Capital and technology expenditures were $192M.

Operating trends and changes

  • Worldwide systemwide RevPAR rose 36.3% year over year in Q3 and 60.9% for the first nine months. Q3 worldwide RevPAR was 1.8% above Q3 2019, supported by ADR 10.2% above 2019 and improving occupancy. Worldwide occupancy was 69.2%, 5.8 percentage points below 2019.
  • Q3 RevPAR was 3.5% above 2019 in U.S. & Canada but 2.4% below 2019 internationally. Greater China and Asia Pacific excluding China remained affected by COVID-19 restrictions; other international regions exceeded pre-pandemic levels.
  • U.S. & Canada segment profit rose to $652M from $485M in Q3; International segment profit rose to $227M from $86M. International results benefited from recovery, with unfavorable foreign exchange partly offsetting gains.
  • The system reached 8,162 properties and 1,507,350 rooms, up from 7,989 properties and 1,479,179 rooms at year-end 2021. The development pipeline exceeded 502,000 rooms.
  • The effective tax rate was 27.5% in Q3 versus 21.1% a year earlier, and 24.2% year to date versus 0.2%. The year-to-date comparison was affected by prior-year tax-reserve releases and current-year tax-audit expense.

Outlook, risks, and contingencies

  • Management expected 2022 gross room growth of approximately 4.5% and net room growth of approximately 3.0%. Gross growth expectations were reduced mainly because COVID-19 restrictions delayed openings in Greater China; estimates include the effect of suspending Russian operations.
  • Management expected approximately $500M of full-year 2022 capital expenditures and other investments. It expected to continue share repurchases and dividends for the rest of 2022.
  • Marriott agreed to acquire the City Express brand portfolio for $100M, subject to regulatory approval and other closing conditions. The transaction could close between late 2022 and the first half of 2023; its rooms were excluded from the room-growth outlook.
  • Management said COVID-19 would likely continue to negatively affect results for an unpredictable period, particularly in Greater China and Asia Pacific. Labor shortages, especially in some U.S. markets, continued to challenge staffing.
  • Starwood data incident: Litigation and government investigations remain ongoing. Marriott recorded an immaterial estimated-loss accrual in Q3, but said additional losses were reasonably possible and could not be estimated; it expected significant future legal, regulatory, cybersecurity, and compliance costs. Insurance may not cover all losses.
  • Guarantees had a maximum potential funding amount of $266M and a recorded liability of $119M. A separate $300M Sheraton Grand Chicago put-option liability remains recorded; the exercise period was moved to the first half of 2024, with expected closing in Q4 2024 if exercised.
  • The $4.5B credit facility’s leverage covenant resumed testing in 2022, with required leverage levels stepping down over subsequent quarters. Marriott was not issuing commercial paper. Management reported no material changes to the risk factors in its 2021 Form 10-K.

Important facts for investors to verify

  • Whether RevPAR and occupancy recovery continues, especially in Greater China and other markets still below 2019 levels.
  • Whether room-growth targets and the 502,000-plus-room pipeline convert into openings on schedule.
  • Future cash needs, debt maturities, covenant compliance, and the balance between repurchases, dividends, and investment spending.
  • The eventual cost and timing of Starwood-related litigation and regulatory resolutions, including whether losses exceed recorded accruals.
  • Regulatory approval, closing timing, and integration or investment requirements for the City Express acquisition.