Steady improvement leads to Marriott 3Q23 earnings beat

Marriott International’s 3Q23 earnings report struck a now familiar tone for 2023 among public companies with results driven by improving performance in Asia Pacific and steady growth in business transient and group travel.

Marriott beat Street estimates as worldwide RevPAR grew 8.8% year over year, including 21.8% internationally with particular strength in Asia Pacific. “Both occupancy and rate contributed to global RevPAR gains in the third quarter, and cross-border travel continued to rise,” said Marriott President and CEO Anthony Capuano.

In the U.S. and Canada, RevPAR rose 4.3% with many urban markets showing outsized growth. Group and business transient saw mid-single digit hotel revenue gains in the quarter, largely driven by rate increases. Leisure transient demand in the region has also remained solid, leading to 4% hotel revenue growth for the segment compared to the year-ago quarter.

For 4Q23, Marriott is forecasting solid RevPAR growth of 6% to 7.5% (U.S. and Canada 3% to 4%, international 14% to 16%). 

Marriott raised its full year 2023 worldwide RevPAR growth guidance to 14% to 15% year over year and expects to return $4.3 billion to $4.5 billion to shareholders through share repurchases and dividends.

Marriott repurchased 4.8 million shares of common stock for $950 million during the third quarter. Year to date through October 31, the company has returned $3.7 billion to shareholders through dividends and share repurchases.

No signs of weakness

Global occupancy in the quarter reached 72%, three percentage points higher than a year ago and global ADR continued to rise, growing 4%.

“While there is heightened geopolitical risk and continued macroeconomic uncertainty, the consumer is still generally holding up well and our forward bookings through the end of the year in most regions around the world remain solid,” said Chief Financial Officer Leeny Oberg.

The performance of group coming out of the pandemic has been remarkable and the segment is expected to continue to be a meaningful driver of revenue growth going forward.

Anthony Capuano

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Oberg added that Marriott started to see some cancellations and softer demand for its five hotels in Israel, as well as for the 27 hotels in Lebanon, Jordan and Egypt. But fees for these four countries made up less than 1% of total company’s gross fees. “We’ve not seen a meaningful impact on demand in the rest of the Middle East,” she added.

Capuano said leisure transient accounted for 45% of global room nights during the quarter, about four percentage points above the first half. Globally, demand in this segment was again quite strong, up 7% year over year.

Business transient demand accounted for 32% of global room nights in the quarter with Capuano defining growth as slow and steady. Business transient revenues in the U.S. and Canada increased 4% year over year.

Global group room night share hit 23% in the quarter with revenues increasing 9% globally and 5% in the U.S. and Canada. “The performance of group coming out of the pandemic has been remarkable and the segment is expected to continue to be a meaningful driver of revenue growth going forward,” Capuano added. For 4Q23, group revenues were pacing up 12% year over year at the end of September, leading the full-year group revenue pacing up 19%.

Group revenue on the books for 2024 are pacing up 14% versus 2023 driven by a 9% rise in room nights and a 5% increase in average rates.

Conversions drive growth

The company added approximately 17,200 rooms globally during the third quarter, including roughly 13,000 rooms in international markets and more than 4,900 conversion room. Through the first three quarters of 2023, Marriott has signed more than 100,000 organic rooms, including the MGM Resorts International deal, a 60% increase compared to the same period last year. Of Marriott’s 557,000-room pipeline (including roughly 40,300 of pipeline rooms approved, but not yet subject to signed contracts), 43% is under construction (1,081 properties with approximately 238,000 rooms).

Marriott anticipates that the 37,000 rooms related to its deal with MGM will now be added to its distribution in early 2024 (delayed due to MGM’s cyber-attack). As such, the company now expects full year 2023 net rooms growth of 4.2% to 4.5%, higher than its August 2, 2023, guidance when excluding the MGM rooms.

Capuano said there is continued strong interest in conversions, including multi-unit opportunities. Conversions represent 20% of signings and nearly 30% of openings in the quarter.

He further elaborated, stating Marriott has 10 signed letters of intent for the City Express brand in the CALA region, nine of which are in new countries. They also have four signings for the new Four Points Express brand in Turkey and London. And while Marriott just recently issued the franchise disclosure documents for the StudioRes basic extended-stay brand, Capuano said they are already in talks for deals in over 300 markets across the U.S. “We expect there will be shovels in the ground for StudioRes projects in the next few months,” he said.

Marriott reported Adjusted EPS of $2.11 (up 25% versus 2022) versus the Street’s $2.10 driven by strong RevPAR growth combined with nearly 5% year over year earnings growth. Adjusted EBITDA was $1.142 billion versus the Street’s $1.144 billion; total gross fees were $1.197 billion versus guidance of $1.185-$1.21 billion. For 4Q23, Marriott is forecasting Adjusted EPS: $2.04-$2.13 versus the Street’s $2.19 and Adjusted EBITDA of $1.115-$1.150 billion versus the Street’s $1.172 billion.