Yahoo Finance Marriott International, Inc. (NASDAQ:MAR) Q4 2023 Earnings Call Transcript
Marriott International, Inc. (NASDAQ:MAR) Q4 2023 Earnings Call Transcript February 13, 2024
Marriott International, Inc. beats earnings expectations. Reported EPS is $3.57, expectations were $2.12. Marriott International, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, everyone and welcome to today's Marriott International Q4 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. [Operator Instructions]. Please note this call is being recorded and I'll be standing by should you need any assistance. It is now my pleasure to turn today’s program over to Jackie McConagha.
Jackie McConagha: Thank you. Good morning everyone and welcome to Marriott's fourth quarter 2023 earnings call. On the call with me today are Tony Capuano, our President and Chief Executive Officer; Leeny Oberg, our Chief Financial Officer and Executive Vice President, Development; and Betsy Dahm, our Vice President of Investor Relations. Before we begin, I would like to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under Federal Securities Laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments. Please also note that our discussion of revenues across different customer segments refer to property level revenues and unless otherwise stated, our RevPAR occupancy, ADR, and property level revenue comments reflect system-wide constant currency results for comparable hotels.
Statements in our comments and the press release we issued earlier today are effective only today and will not be updated as actual events unfold. You can find our earnings release and reconciliations of all non-GAAP financial measures referred to in our remarks today on our Investor Relations website. And now, I will turn the call over to Tony.
Anthony Capuano: Thank you Jackie and good morning everyone. Our team produced fantastic results in 2023. We continued to experience strong momentum in our business around the world thanks to solid demand for travel and our diverse portfolio of 30 plus leading brands. Full year of global RevPAR rose nearly 15% and net rooms grew 4.7% leading to excellent earnings and cash flow growth. In the fourth quarter global RevPAR increased over 7% year-over-year driven by roughly equal gains in the ADR and occupancy. Group which comprised of 23% room nights was again the standout customer set. Compared to the year ago quarter Group revenues rose 9% globally and 7% in the U.S. and Canada. And Group is shaping up to have another solid year in 2024.
At the end of last year, full year 2024 Group revenues were pacing up nearly 13% globally and 11% in the U.S. and Canada on a year-over-year basis, driven by robust increases in both room nights and ADR. Leisure transient accounted for 44% of global rooms nights in the quarter. This segment has by far grown the fastest coming out of COVID. With global leisure transient revenues in the fourth quarter, nearly 50% above the same quarter in 2019. Even with this strong growth, demand has remained resilient. Fourth quarter global room nights rose 5% over the year ago quarter, leading to a 6% leisure transient revenue growth worldwide. In the U.S. and Canada, leisure revenues were up 2%. Business transient contributed 33% of global room nights in the fourth quarter.
Demand from small and medium-sized corporates remained robust, and while large corporates are still lagging, they continue to post volume increases. Solid gains in ADR drove business transient revenues of 7% globally and 3% in the U.S. and Canada. Our powerful Marriott Bonvoy loyalty program grew to over 196 million members at the end of the year. Member penetration of global room nights reached new highs in the fourth quarter at 69% in the U.S. and Canada and 62% global. Our digital channels and mobile in particular remain key drivers of growth at a lower cost to our owners. Our Marriott Bonvoy app contributed 22% more room nights in 2023 than in the prior year. We are focused on improving the customer experience across all our digital and other booking channels through the multi-year technology transformation we have underway.
Enhancing engagement with our members outside of hotel stays through our numerous successful Marriott Bonvoy collaborations, including our co-branded credit cards also remains a priority. Our growing portfolio of 31 credit cards across 11 countries had record global card member acquisitions last year, and card spend for the year grew 11%. On the development front, despite a challenging financing environment in the U.S. and Europe, we signed a record 891 organic management, franchise, and license agreements in 2023, representing approximately 164,000 rooms. Additionally, we ended the year with a new high of roughly 573,000 rooms in our pipeline. We expect another year of strong global signings in 2024 and are already off to an incredible start.
We also saw a meaningful acceleration in net rooms growth last year to 4.7%, the highest growth since 2019. Conversions helped again in 2023, accounting for 25% of organic room additions and 40% of organic room signings. For 2024, we anticipate net rooms growth of 5.5% to 6%. This includes around 37,000 rooms from MGM. The first set of these rooms at New York, New York became available on our Marriott channels at the end of January, with the remaining properties expected to be available by the middle of March. While it is very early days, we are incredibly pleased with the initial booking pace. We're excited about adding these amazing properties to our portfolio and enhancing our distribution in Las Vegas and other cities across the U.S. We remain confident in the three-year net rooms compound annual growth rate we discussed at our investor meeting in September of 5% to 5.5% from year-end 2022 to year-end 2025.
As we focus on expanding our lodging offerings for owners, franchisees, and guests, we're making significant progress globally in the high-growth, mid-scale space. We are in numerous deal discussions for Citi Express in the Caribbean and Latin America, or CALA region, and for Four Points Express in Europe, the Middle East, and Africa. Here in the U.S. we celebrated the first groundbreaking for StudioRes in Fort Myers, Florida in January and have over 300 additional potential deals under discussion in around 150 markets. As we strive to offer more options for our stakeholders, we're also working on a new U.S. transient mid-scale brand for both new build and conversions. At the other end of the chain scale, our luxury distribution is currently over 50% larger than our next closest competitor and that lead is expanded.
In 2023, we have record luxury signings with 58 new deals and we added 29 new luxury hotels to our portfolio. In closing, 2023 was a banner year for Marriott, and I am optimistic about what lies ahead. The demand for all types of travel remains strong, even as the rebound impact from the pandemic has waned. The fundamentals for our industry are outstanding, and we are determined to grow our industry-leading position. We remain focused on offering the best brands and experiences to the most valuable and engaged guests while expanding the broadest and deepest portfolio of global properties and offerings so we can continue to connect people around the world through the power of travel. I want to thank our Marriott teams around the world for their remarkable dedication and excellent work.
And now, let me turn the call over to Leeny to discuss our financial results in more detail.
Leeny Oberg: Thank you, Tony. I'll walk you through our strong 2023 financial results. In the fourth quarter, U.S. and Canada RevPAR increased over 3% year-over-year, primarily due to higher ADR. International RevPAR rose 17%, driven by an 8 percentage point gain in occupancy and a 4% rise in ADR. Asia Pacific again experienced the largest year-over-year RevPAR increase. RevPAR rose 81% in Greater China helped by the last quarter of easy comparisons to COVID lockdowns in the year ago quarter and grew 13% in Asia Pacific, excluding China. Fourth quarter total gross fee revenues grew 10% to 1.24 billion reflecting higher RevPAR, room additions, and strong growth in our co-brand credit card fees. Incentive management fees or IMF rose 17%, reaching 218 million driven by another quarter of significant increases in Asia Pacific.
For the full year, gross fees rose 18% with record IMFs that were nearly 20% higher than our prior peak in 2019. Owned lease and other revenue net of direct expenses reached 151 million in the quarter and included substantially higher termination fees, primarily due to 63 million associated with the termination of a development project. G&A of 330 million was impacted by a $27 million litigation reserve for an international hotel, as well as timing of performance-related compensation, an increase in bad debt expense, and higher professional fees, which included costs associated with our intellectual property restructuring transactions. Fourth quarter, adjusted EBITDA grew 10% to nearly 1.2 billion. For the full year, adjusted EBITDA was 21% higher than in 2022.
Thanks to our team's excellent tax planning efforts that reflect evolving global tax laws, we had a tax benefit of $267 million in the quarter. This was due to over $400 million of favorable discrete items related to international IP restructuring strategies and the release of a tax valuation allowance. The fourth quarter effective tax rate was slightly higher than last year's and above our previous expectations due to jurisdictional mixed shift. At the hotel level, despite meaningful wage and benefit inflation, we maintained profit margins in our U.S. managed hotels in the quarter and for the year compared to both 2022 and 2019, a strong performance. Importantly, our guest surveys indicate that customer satisfaction continues to rise. In December, our intent to recommend score achieved its highest monthly score in over five years.
Our asset-light business model once again generated significant cash with almost $3.2 billion of cash provided by operating activities in 2023 of 34% year-over-year. Our loyalty program was a source of cash even after factoring in the final year of reduced payments from the credit card companies resulting from the amendments we entered into in 2020. In 2024, we expect loyalty cash flow to be roughly neutral. Now let's talk more about 2024. Our full year outlook assumes a steady, albeit slower growing, global economy. It also reflects normalized lodging demand in most regions around the world, with Asia Pacific expected to see higher growth in other regions as it continues to have some benefit from COVID recovery, as well as additional international airlift.
In 2024, RevPAR growth is expected to be driven by another meaningful increase in group revenue, continued improvement in business transient demand, which will be helped by mid-single-digit special corporate rate increases, and slower but still growing leisure revenues. We're off to a strong start with January RevPAR up 7% globally, reflecting continued strong demand around the world, potentially in international markets. International RevPAR rose 14% and U.S. and Canada RevPAR increased 4% in the month. With year-over-year comparisons easiest in January and Easter shifting from April to March this year, global RevPAR for the first quarter could increase 4% to 5%. For the full year, we anticipate a 3% to 5% rise in global RevPAR. Growth is expected to remain higher in international markets than in the U.S. and Canada, with particular strength in Asia Pacific.
The sensitivity of a 1% change in full year 2024 RevPAR versus 2023 could be around 50 million to 60 million of RevPAR related fees. For the full year, gross fees could rise 6% to 8% to 5.1 billion to 5.2 billion with non-RevPAR related fees rising 9% to 10% driven by strong credit card and residential branding fee growth. Owned, leased, and other revenues net of expenses are expected to total 320 million to 330 million, 17% to 20% lower than 2023 due to meaningfully lower termination fees given the large termination fee in the fourth quarter of 2023, a property we sold last summer, and CALA flipping from owned to managed, and renovations at several owned hotels. We expect 2024 G&A expense could be flat to up 2% year-over-year. There are a few discrete one-time items from 2023 that are expected to offset wage and benefit increases.
Full year adjusted EBITDA could increase between 5% and 8% to roughly 4.9 billion to 5 billion. Note that our 2024 effective tax rate is expected to be around 25% while we expect our underlying core cash tax rate to remain in the low 20% range. Guidance details for the full year and first quarter are in the press release. Please note that first quarter results are expected to be impacted by a few items. First, the timing of residential branding fees is expected to result in these non-RevPAR related fees being meaningfully lower in the first quarter but up nicely for the full year. Second, owned lease and other revenue net of expenses will be lower due to the renovations on several owned properties, as well as the CALA property that flipped from owned to managed.
And finally, G&A in the year-ago quarter benefited from several one-time items, while this year's first quarter includes MGM integration costs. Our capital allocation philosophy remains the same. We're committed to our investment-grade rating, investing in growth that is accretive to shareholder value, and then returning excess capital to shareholders through a combination of a modest cash dividend and share repurchases. We're pleased with the significant value we return to shareholders in 2023 and expect strong capital returns again in 2024 [ph]. For 2024, factoring in the 500 million of required cash in the fourth quarter for the purchase of the Sheraton Grand in Chicago, capital returns to shareholders could be between $4.1 billion and $4.3 billion.
Full year investment spending could total $1 billion to $1.2 billion. This includes another year of higher than historical investment in technology, the vast majority of which is expected to be reimbursed over time. The $500 million for the Sheraton Grand Chicago consists of $200 million of CAPEX and $300 million elimination of previously reported guarantee liability. Investment spending is also expected to incorporate roughly 200 million for our owned-leased portfolio and includes spending for the renovation and the elegant portfolios in Barbados, and the completion of the W Union Square renovations. We'll look to recycle these assets and sign long term management contracts after renovations are complete. As Tony mentioned, we're also thrilled about our development and growth prospects both inside and outside the U.S. We continue to gain market share with 7% open rooms, and 18% of rooms under construction globally, at the end of last year.
Tony and I are now happy to take your questions. Operator.
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