Marriott International, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited. Marriott operates, franchises, and licenses lodging properties and reports U.S. & Canada and International segments. The company owns relatively few properties.
Financial performance and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $3.149bn | $1.464bn | $5.465bn | $6.145bn |
| Net fee revenue | $624m | $213m | $1.052bn | $817m |
| Operating income (loss) | $486m | ($154m) | $570m | ($40m) |
| Net income (loss) | $422m | ($234m) | $411m | ($203m) |
| Diluted EPS | $1.28 | ($0.72) | $1.25 | ($0.63) |
| Operating margin, calculated | 15.4% | (10.5%) | 10.4% | (0.7%) |
Operating margins use reported total revenue, which includes cost-reimbursement revenue and corresponding reimbursed expenses; those pass-through amounts can make margins less informative. Q2 revenue and earnings improved sharply against the pandemic-impacted 2020 quarter. First-half revenue was lower year over year, largely reflecting lower cost-reimbursement revenue.
- Cash flow: First-half cash from operations was $126m, versus $1.505bn in 2020. Investing activities used $72m; financing activities used $269m. Cash, cash equivalents, and restricted cash ended at $679m, down $215m from year-end 2020. Management attributed the operating cash-flow decline mainly to prior-year prepaid co-brand card proceeds, working-capital outflows, and higher cash taxes.
- Debt and liquidity: Total debt was $10.188bn, including $805m current and $9.383bn long-term. Cash and equivalents were $664m on the balance sheet. The $4.5bn revolving credit facility had $400m outstanding and $4.1bn remaining capacity. The current ratio was 0.5 to 1.0. Management said available cash, the facility, and capital-market access were adequate for liquidity needs.
- Other balance-sheet items: Guest loyalty program liabilities totaled $6.475bn. Stockholders’ equity was $796m.
- Operating recovery: Worldwide comparable systemwide RevPAR rose 262.6% year over year in Q2, but remained 43.8% below Q2 2019; first-half RevPAR was 11.1% above 2020 but 51.0% below the first half of 2019. June worldwide comparable occupancy reached 55.2%.
Material changes versus comparable periods
- Q2 base, franchise, and incentive management fees increased with recovering lodging demand, unit growth, and higher co-brand credit card fees. Net fee revenue grew 193% in Q2 and 29% for the first half.
- Q2 U.S. & Canada segment profit was $344m versus a $36m loss; International segment profit was $79m versus a $163m loss. First-half segment profit was $487m in U.S. & Canada and $56m International, compared with $122m and a $190m loss, respectively, in 2020.
- Q2 total revenue rose 115% year over year, while first-half revenue fell 11%. Reimbursed expenses and related revenue move with program activity and are generally not intended to affect Marriott’s economics over time.
- First-half income tax benefits included a $118m release of tax reserves following favorable resolution of Legacy-Starwood tax audits. Effective tax rates were (10.9)% for Q2 and (16.3)% for the first half.
Outlook, risks, contingencies, and unusual items
- Outlook: Management expected full-year 2021 gross room growth of approximately 6.0% and net room growth toward the high end of 3.0%–3.5%. It forecast $575m–$625m of capital expenditures and other investments for 2021, including about $220m for maintenance capital and the new headquarters. No earnings or RevPAR guidance was provided in the filing text.
- Management cited accelerating leisure-led recovery, with business transient and group demand still below pre-pandemic levels. It said COVID-19 would continue to materially affect results for an unpredictable period. Share repurchases and dividends remained suspended; credit-facility restrictions also limited them during the covenant waiver period, extended through Q4 2021.
- Marriott had 7,797 properties and 1,451,609 rooms at quarter-end, with nearly 478,000 rooms in its development pipeline. Pipeline openings may be delayed or cancelled, and the filing noted property-level labor shortages.
- Property-level restructuring charges were expected to continue; cumulative property-level charges were $268m through the first half. The company recorded $19m of first-half restructuring charges, including amounts classified in reimbursed expenses.
- Cybersecurity litigation and investigations: The company said additional losses related to the Starwood data security incident were reasonably possible but could not be estimated. Dismissals of the U.S. securities case and derivative cases were subject to an appeal in the securities case; other proceedings and government investigations remained open. Q2 incident expenses and accrued insurance recoveries were each $7m.
- Commitments: The Sheraton Grand Chicago owner could exercise a 2022 put option requiring Marriott to buy the leasehold interest and hotel for $300m; Marriott has an additional option to buy the underlying land for $200m. The recorded liability for the put option was $300m.
- Guarantees had a maximum potential future funding amount of $267m and a recorded liability of $130m. Marriott also disclosed $349m of projected Deemed Repatriation Transition Tax payments.
- On July 23, 2021, after quarter-end, Marriott announced redemption of $400m of Series N Notes on August 9, 2021. The company also issued $1.1bn of 2.850% notes due 2031 in March 2021.
Important facts for investors to verify
- Whether the travel recovery—especially business transient and group demand—supports continued fee growth, and how RevPAR compares with 2019 levels across regions.
- Cash generation, working-capital needs, debt maturities, credit ratings, and compliance with the amended credit-facility liquidity and leverage terms.
- The extent of further restructuring costs, property-owner support or guarantee funding, and potential hotel exits or development-pipeline delays.
- Potential financial exposure from the Starwood data incident litigation and investigations, including insurance coverage and any eventual settlements, fines, or penalties.
- Whether the stated room-growth and investment outlook is achieved, and how cash requirements interact with suspended dividends and repurchases.