Strong company performance, a growing pipeline and tax reform have made officials at Marriott International confident moving into the new year.
BETHESDA, Maryland—The fourth quarter of 2017 was the “icing on the cake” of a terrific year, said Marriott International President and CEO Arne Sorenson during the company’s Q4 and full-year earnings call.
The company performed beyond expectations, Sorenson said. Last year’s fee revenue compared to combined adjusted amounts in 2016 increased 8% to $3.3 billion, and adjusted earnings before interest, taxes, depreciation and amortization reached $3.2 billion.
“As 2017 demonstrated, the global travel industry has never been more exciting nor offered better opportunity,” he said. “Occupancy is at record levels with young travelers seeking adventure, retirees exploring exciting places, expanding numbers of international vacationers and for business travelers making connections that drive success.”
Strengthening economic climates and bookings made easier by technology are fueling people’s wanderlust, Sorenson said, and Marriott is seizing this opportunity. The company’s more than 6,500 properties and 30 brands provide “a broad choice of aspirational destinations.”
Marriott opened 76,000 rooms in 2017, yielding a worldwide net system growth of 5.6%, Sorenson said. The company signed nearly 125,000 new rooms worldwide, he said, including 15,000 rooms that were conversions from other brands.
Despite delays in construction through a shortage of labor, Marriott projects to grow worldwide rooms by 7% gross and 5.5% to 6% net, Sorenson said.
Marriott’s stock was up 4.1% year to date Thursday afternoon. The Baird/STR Hotel Stock Index was up 4.5% for the same time period.
Corporate and group bookings
Marriott’s transient business grew about 4.1% in the U.S., which includes corporate negotiated rates, retail rates, leisure and contract rates. Corporate RevPAR grew 4.1% as well, he said, which is right on the average and is a fairly encouraging sign. Over the past year or so, the corporate traveler was a bit weaker than the leisure traveler and the average transient performance, he said. Corporate bookings in the fourth quarter showed small signs of life.
“It wasn’t overwhelmingly different than in prior periods, but it was stronger than prior periods,” he said. “All of that is at least a hint of something to be optimistic of.”
Sorenson said he’s been struck by how broad the optimism is among U.S. CEOs, which dramatically improved following the passage of the tax-reform bill.
“The tone in many of the conversations I’ve had with folks is quite bullish,” he said.
However, that doesn’t automatically translate into Marriott sending out a team to spend more money in hotels, he said. If that optimism translates into better corporate profits and more investment activity, the hotel industry will inevitably see corporate demand improving.
Reinvesting in employees
The sale of Marriott’s ownership interest in hotel procurement and supplies company Avendra to Aramark provided $659 million following the deduction of company debt, transactions cost and other expenses, EVP and CFO Leeny Oberg said.
The fourth-quarter GAAP results will reflect the impact of the passing of the U.S. Tax Cuts and Jobs Act of 2017, she said. The tax provision includes a $567-million charge as the net of a $745-million transition tax on its accumulated foreign earnings to be paid over eight years, a $159-million favorable revaluation of the company’s net deferred tax liabilities at lower rates and $19 million in other tax benefits.
“In total, the Avendra transaction and 2017 tax legislation reduced our fourth-quarter GAAP net income by $167 million and diluted EPS by $0.45,” she said.
The company’s new effective tax rate will drop about eight points to come in at roughly 22%, Sorenson said, and the passing of the bill will hopefully result in a stronger economic climate in the U.S. In considering how to leverage this development, he said the company considered its long-term cultural maxim that strong guest loyalty and economic results are derived from high associate satisfaction and engagement.
“To put it plainly, at Marriott, we try to take care of our associates, our associates take care of guests, and our guests keep coming back,” he said. “Attracting and keeping the best talent is critical for us, so we plan to invest roughly $140 million in our most import asset: our people.”
Marriott will contribute $70 million directly and use $70 million from its proceeds from selling Avendra to increase the retirement savings match of associate contributions of up to $1,000 for eligible associates in the U.S., he said. The company will invest in other associate support programs during the year.
“Our most powerful advantage is our culture,” he said. “It is a deep commitment to people, treating each other with dignity and respect, offering everybody an opportunity for learning and growth and working together as a team.”
Relationship with China
Sorenson said he doesn’t expect there to be a measurable financial impact resulting from its shutting down of its websites in China as an apology after it sent out an email questionnaire to rewards members that listed Hong Kong, Taiwan, Tibet and Macau as standalone countries.
“Now, to be fair, that depends on us not making any more mistakes in this space,” he said.
The company relied on a third-party vendor to provide the customer survey, Sorenson said.
“We should have caught it, and we didn’t,” he said. “We moved quickly to fix the mistake.”
Marriott is looking at what it has made available to online customers to make sure it won’t make similar mistakes in the future, he said.