Marriott International Inc. (MAR, Financial) has continued to showcase its resilience by delivering an exceptional performance. Despite the challenges posed by inflation, the company's operations remain robust. This can be attributed to its efficiency and growth in business and leisure travel, which has driven a strong recovery.
However, it is important for the hospitality company to not become complacent, as the possibility of a recession may hinder its progress. Nonetheless, the company's solid fundamentals are the bedrock of its success in an unpredictable market. Its cash inflows remain steady, providing ample coverage for borrowings and dividends.
Marriott is back to pre-pandemic levels
Despite its stature as an industry giant, Marriott was not immune to the effects of the pandemic as restrictions caused a significant decline in its financials. However, the company has proven to be resilient.
Thanks to its prudent asset management, the company experienced a clear upswing last year. That momentum is expected to continue.
In February, Marriott reported its adjusted earnings per share for the fourth quarter of 2022 came in at $1.96, surpassing the prior-year quarter's adjusted earnings of $1.30. Quarterly revenue of $5.92 billion reflects a 33.2% increase from the previous year. The strong top-line growth was driven by increased lodging demand and unit growth, with base management and franchise fee revenues totaling $287 million and $658 million.
Additionally, other non-revenue per available room-related franchise fees contributed to the growth, with $215 million reported compared to $186 million in the year-ago quarter, largely due to solid co-brand credit card fee contributions.
Marriott's RevPAR for worldwide comparable system-wide properties rose by 4.6% in constant dollars compared to 2019, driven primarily by a 12.8% increase in the average daily rate. However, occupancy declined by 5.1% from 2019 levels.
In Asia Pacific (excluding China), RevPAR increased by 5.5%, with a 4.8% decline in occupancy but a 12.8% increase in ADR. Comparable system-wide RevPAR in China fell by 42.3% compared to 2019. On an international scale, RevPAR increased by 3.4%, with an 8.3% decline in occupancy and a 17.3% increase in ADR.
RevPAR increased by 7.4% in Europe, while the Caribbean & Latin America experienced a 27.6% increase from 2019 levels. The fourth quarter saw adjusted Ebitda of $1.09 billion, up from $741 million in the prior-year quarter.
In the fourth quarter, Marriott incurred $107 million in net interest expense, up from $91 million in the same period of the previous year. The increased interest expense primarily drove this rise from higher debt levels.
As of the end of 2022, Marriott's total debt was $10.1 billion, while its cash and equivalents amounted to $507 million. In comparison, the company had $10.1 billion in debt and $1.4 billion in cash and equivalents at the end of 2021. Nonetheless, Marriott has the financial capacity to manage its debt burden, as evidenced by its free cash flow of $2.03 billion at the end of the latest quarter, compared to $994 million a year earlier.
The company's solid financial position enabled it to return $2.9 billion to shareholders in 2022 through share buybacks and dividends.
Digging further into the numbers
Marriott's higher-priced brands are experiencing a recovery, despite the usual seasonal decline in demand during the winter months. This trend is evident across the Ritz-Carlton brand, where RevPAR decreased from the second quarter of 2022 but remained higher than the previous year for the three months ending Dec. 31, 2022.
Additionally, the average daily rate at the Ritz-Carlton during the fourth quarter of 2021 was $519.73, which saw a slight decrease to $516.85 during the same period in 2022. This suggests the revenue growth is driven by demand rather than price increases, as evidenced by the continuing rise in RevPAR despite the stagnant ADR.
Over this same period, occupancy rates for the Ritz-Carlton also increased from 58.5% to 63.8%. Notably, the occupancy rate for the fourth quarter of 2019 was 72.9%. In my opinion, there is still potential for the hotel chain's occupancy rates to increase further, which could lead to continued growth in RevPAR going forward.
A busy year
Marriott International is one of the leading hospitality companies, but is far from resting on its laurels, as evidenced by its averaging two agreements per day in 2022, a 21% increase from the previous year.
The company has continued to progress in 2023, expanding its reach by opening new hotels in various countries, including Europe, the Middle East and Thailand. Given the lucrative nature of the midscale hotels market in the current economic conditions, it inked a timely acquisition agreement with City Express last October.
The company's acquisition of the City Express portfolio has gotten the nod from Mexico's Federal Economic Competition Commission. The deal includes 17,000 rooms, allowing Marriott to expand into 70 cities in Mexico and three Latin American countries. Following this acquisition, the firm's share of the Caribbean and Latin American market will grow by over 40%, establishing it as the leading hotel company in that area.
In addition, Marriott is expanding its presence in luxury destinations through a series of recent partnership agreements. The company will build three hotels on Saudi Arabia's Sindalah Island, including two Luxury Collections properties, one- to four-bedroom residences and an Autograph Collection Hotel with 66 rooms and villas.
The company has also agreed to rebrand the Westin Siray Bay Resort & Spa as The Ritz-Carlton on Phuket Island and transform the Hotel Grande Bretagne on Lake Como into another Ritz-Carlton property.
These projects are set to open between 2024 and 2026. They are expected to contribute to the company's growth, which has seen a 28.8% increase in revenue per available room globally in the fourth quarter of 2022 and is projected to increase by 30% in 2023.
A safe dividend at a discount
In light of the pandemic, Marriott, like many other copanies, made the difficult decision to suspend its dividend payment. It has since resumed them, however, as the number of cases began to decrease.
Since reinstating its payouts last year, the hospitality giant has steadily increased its distribution. However, it is important to note that its dividend yield remains modest at 0.88%. This places its dividend yield performance lower then 77.93% of companies in the same industry and is notably lower than the industry median of 2.19%.
However, Marriott's dividend payout ratio range over the past 10 years, with a minimum of 0.14, a median of 0.31 and a maximum of 0.49, is a good sign for investors. This indicates the company has consistently returned a significant portion of its profits to shareholders as dividends. With the current dividend payout ratio of 0.14, Marriott also maintains its dividend payments to shareholders.
Compared to other travel and leisure industry companies, Marriott's dividend payout ratio of 0.14 is ranked better than 81.78%. This indicates the hotel operator is in a good position to provide value to its shareholders by consistently paying dividends. Furthermore, the industry median of 0.35 is higher than Marriott's dividend payout ratio, which indicates it is potentially retaining more earnings to reinvest in the business to drive growth further.
Overall, Marriott's consistent dividend payout ratio over the past decade and its position in the industry's top quartile in terms of payout ratio is a good indication of the company's financial strength and commitment to providing value to its shareholders.
Macroeconomic headwinds remain the biggest thorn in its side
The multinational hospitality giant is experiencing a robust recovery that has surpassed pre-pandemic levels.
The U.S. Travel Association Consumer Quarterly Tracker by Ipsos reports that 52% of Americans plan to travel for leisure in the first half of 2023, with 23% indicating they will travel more than they did in 2022.
Further, the United Nations World Tourism Organization predicts that international travel will rebound to more than 80% of pre-pandemic levels, which is expected to benefit Marriott, which has over 8,000 properties in 139 countries.
China's relaxation of travel restrictions and lockdowns has already positively impacted Marriott's search history, with an uptick in leisure demand during the Chinese New Year, according to Chief Financial Officer Kathleen Oberg.
However, Marriott must remain vigilant in the face of inflationary pressures that have raised prices for gas, hotels and flights. The potential impact of an upcoming recession also threatens its recovery. As such, Marriott International may face a potential risk of reduced booking demand due to worsening economic conditions.
While there has been a significant rebound in demand during the post-Covid recovery, there is a possibility that demand could plateau due to rising prices, resulting in a revenue growth ceiling for the summer months.
Takeaway
Marriott International has demonstrated robust revenue growth, defying the effects of inflationary pressures, across its higher-end and mid-priced brands.
It is a good stock as the travel industry continues to recover from the pandemic. As one of the largest hotel chains in the world, Marriott is well positioned to benefit from the increase in travel demand.
Moreover, Marriott's diversified portfolio of hotels and brands and its strong loyalty program provide a competitive advantage. The company's financial strength and consistent dividend payments make it a potentially attractive investment option for investors looking for stability and growth potential in the travel industry.
