Marriott Internal, Inc.’s Financial Analysis

Company Details
History
Marriott International, Inc. (NASDAQ: MAR) is a multinational company based in Bethesda, Maryland in the United States, and is regarded as the largest chain of hotels in the world. The company operates a diversified portfolio of hospitality enterprises, including hotels, resorts, and lodging facilities. As of 2017, the firm boasted of over 6,500 properties in 127 countries across the globe, more than 1.2 million hotel rooms, and close to 195,000 more boarding spaces under development. It was started in 1927 as a root beer stand when J. Willard Marriott and his wife, Alice Sheets Marriott, decided to sell cool drinks to city residents. The couple developed the business into a chain of restaurants and went public as Hot Shoppes, Inc. in 1953 before being renamed as the Marriott Corporation in 1967 (Marriott International, Inc., 2018).

Geographical Spread and Growth Strategy

The Marriott Corporation launched five new establishments in 1940 and operated as a food service management firm. It then ventured into the supply of hospital food in 1957. Twin Bridges Marriott Motor Hotel, the company’s first hotel, was established in 1957 in Arlington, Virginia. By 1964, the company had opened four hotels, 45 Hot Shoppes restaurants, and other business. It was then renamed to Marriott-Hot Shoppes, Inc. The business quadrupled in size over the next six years and surpassed its primary competitors, including Accor S.A and Wyndham Worldwide, among others, in both income and profits, under the leadership of Bill Marriott, Jr. His main growth strategy included aggressive acquisitions and opening new businesses. The firm became international in 1966 following the acquisition of an airline catering business in Caracas, Venezuela. Bill Marriott, Jr. also increased the company’s growth rate by building hotels for sale while retaining their control through management contracts. The formation of Marriott International occurred after the split of the Marriott Corporation in 1993 following changes in the tax law. The company continued acquiring existing businesses, including a 49 percent stake in the Ritz-Carlton Hotel in 1995, the Renaissance Hotel Group in 1997, New World, and Ramada, and also launched new ones (Marriott International, Inc., 2018).

Brands and Markets

Marriott International operates two main lines of business, Marriott Lodging and Marriott Service Group, and four business segments, namely, North American Full-Service, North American Limited Service, International, and Asia/Pacific. Marriott Lodging operates and franchises over 1350 lodging premises through more than 30 hotel brands globally while the Marriott Service Group deals exclusively in contract services. The latter is made up of Marriott Senior Living Services, Marriott Management Services, and Marriott Distribution Services. The company also runs several conference centers in the United States through its Marriott Conference Centers as well as timeshare vacation properties through the Marriott Vacation Club International. Its reputable brands include Ritz-Carlton, W Hotels, Fairfield Inn and Suites, Courtyard, and Residence Inn (Schawbel, 2013).

Business Model

The company has three distinct business models, including franchising, management, and ownership. Over 95 percent of its revenue is derived from management contracts and franchising deals (Hormby et al., 2010). Its recurring fee business model allows the company to gain competitive advantages and provides a stable revenue stream.
Competitive Set and Comparative Advantages
The management’s perspective on entrepreneurial tactics is an essential aspect of a company’s sustainability and long-term growth. As such, firms strive to reevaluate their internal workings to position themselves more suitably within their operational environments. This process typically entails the creation of methodological ideas and advances that generate sustainable competitive advantages. Figure 1 shows Marriott International, Inc.’s competitiveness in comparison with its major competitors. The company is inarguably above other players in the industry, a position generated by its differentiation strategy (Nyangwe & Buhalis, 2018).
Marriott used differentiation strategy to market its products since it operates in a highly competitive industry. Marriott international has succeeded in employing business level generic strategies. Its products have made it a top company in accommodation sector and it is projected that it will stabilize in the coming years. Competitive advantage for Marriott includes uniqueness and cost. Their brand portfolio enables them to have a market command in hospitality industry. The differentiation strategy for Marriott is favored by its ability to offer different price packages for lodging facilities (Marriott, 2016). Marriott board of management was quick to realize that offering services under one hotel brand would not cater for the needs of different customer segments. Consequently, the management created various hotel brands that could offer a variety of services. In this strategy, products range from high-end to low-end to suit various customer budgets. The firm’s products help in molding customer loyalty.

Corporate Governance

Marriot hotel and resort is popular for its commitment to integrity and transparency in its governance practices. The company’s shareholders are responsible electing a board of directors whose role is to supervise management and enhance a lifelong value for shareholders. The board of directors in collaboration with independent committee conducts evaluation and challenges the strategic plans. It is also responsible for appointing corporate officers and approving compensation of the senior executives, declaring dividends, approving investments, and making decisions on important matters. Marriot organizational structure comprises of the general manager, several departmental managers, associates and supervisors. The management of the company is spread across different functional departments with unity of command system. Issues regarding the company are reported directly to the nominating committee chairman, independent directors and audit committee. The issues are reviewed by the appropriate board of directors. Marriot is a big company that is spread in different parts of the world which explains complexity in its governance structure. The structure experiences a great level of external and internal complexity when developing branches internationally (Hormby et al., 2010).
Since its birth in 1927, Marriott believes in diversity and inclusion. The governance of the company embraces differences while conducting business in every part of the world which is essential for success as the leading hospitality organization across the globe. Diversity and inclusion is part of the company’s core values and strategic business goals. It governance embraces differences and creates opportunities for all employees, board of directors, franchisees, owners and suppliers. The company’s CEO and senior executive team play an important role in driving diversity agenda. Moreover, the company’s international presence has led to many specialized departments and positions that are led by people from diverse backgrounds in order to handle specific environments worldwide. Currently, the corporate structure comprises of twenty three executive board members. The company’s unmatched international presence has segmented leadership positions for each region that they are located. Additionally, each hotel property has and governance structure that is united to the mother company (Marriott, 2016).

Marriot hotel boasts of specific ownership structure. As of 2013 fiscal year report, the company owned 3,916 hotel properties that are either franchise, managed or licensed while are few are owned by the company. The board of directors for the company is nominated in office during stakeholders’ annual meeting. Each director serves in office until a successor is elected or incase of death, removal or resignation. Membership to board depends on age, qualifications and experience. For decades, Marriot’s board was dependent on family relationship. Gradually, the CEO realized that he had to make a different choice since it had become a leader in global hotel industry.
The governance policy for Marriot is mostly dependent of family relationship, age and experience in the hotel industry. For instance, since 1927, Marriott hotel was headed by its founder who was later succeeded his son in 1964 who was only 32. It was expected that his father’s Vice president who had adequate experience in the industry would become the next CEO since he was brilliant and 32 years older. Board membership takes into account the principles of effective governance. The organization is headed by an effective board that is accountable and responsible. The board is headed by independent minded people and comprises of independent and non-independent directors as well as executive and non-executive directors. Directors are appointed in a formal and transparent process. For instance, due to skills, experience and knowledge, the current CEO is a non-family member.
Wyndham Hotels and Resorts is governed by Geoff Ballotti who has the president and CEO for the hotel since 2008. The CEO has adequate leadership experience where he has been in various positions in North America and Europe. Other corporate leadership positions for the company include chief financial officer, chief strategy & development officer, General Counsel, chief administration officer, chief commercial officer, chief operating officer and, chief information officer (Wyndham Destinations, 2018). From the analysis, it is quite evident that the corporate structure for Wyndham hotel is led by individual that have past experience in leadership. Compared to Marriott, most of these individuals do not have family relations. For decades Marriott hotel has been family led and even after electing a non family CEO, most of leadership positions are held by Marriott family.
Accor hotel is a global group and leader in European hotels. The hotel offers services to public institutions and corporate clients. The hotel has operated for more than 40 years in nearly 100 countries. Currently, Accor Sa hotel board of directors has 12 members. The board and shareholders meet annually for elections. The board of directors is required to abide to operating rules that include the by-laws and code of conduct.

Financial Performance Analysis

Market capitalization indicates a company’s total market value, and is equal to the product of its share price and the number of outstanding shares. Marriott International amended its financial reporting cycle in 2013 from a 52 to 53 week fiscal year that ended on the last Friday of every year to a calendar year-end cycle for annual statements and an end-month quarterly cycle. The company has consistently reported strong financials, with its high margins accounting for the largest proportion of its profits. Indeed, analysts have historically revised the firm’s EPS predictions upwards for upcoming fiscal years. It has a large market capitalization of 38.87 billion US dollars as of October 19, 2018 while two of its competitors, Accor and Wyndham Worldwide, are valued at 13.38 billion and 3.64 billion US dollars respectively. Nevertheless, analysts indicate that the company is among those firms with the lowest prospects for growth, primarily due to its high debt in relation to its level of earnings before interest, tax, depreciation, and amortization (EBITDA). Its sales forecasts for the last twelve months have been considerably lowered. The firm’s quarterly market capitalization increased from 17.18 million dollars in 2015 to 31.85 million dollars as of December 2016. It also reported improvements in market capitalization to 48.74 million dollars in December 2018. However, the company reported a decline between the end of 2017 and June 2018 to 44.15 million dollars. Figure 2 shows Marriott International’s historic market capitalization trend (Guru Focus, 2018).
Marriott International, Inc. has constantly reported an increase in its return on equity (ROE) since 2017 as shown in Figure 3.1, 3.2, and 3.3. Return on equity is an indicator of a company’s efficiency in utilizing or investing shareholders’ money. It is extremely useful when evaluating profitability as well as the management’s effectiveness. Ordinarily, businesses the report ROE of between 10 and 30 percent are considered as attractive investments since they can pay dividends and still have enough money for future growth. Marriott’s latest financial statements show a return on equity of 39.27 percent, which is considerably higher than average level in the hotel and lodging industry. In contrast, Accor S.A’s reported return on investment is 6.05 percent during the same period (Guru Focus, 2018).

Concerning its return on invested capital, Marriot International, Inc.’s performance has also been particularly appealing as shown in Figure 3.4. This ratio is a measure of an organization’s rate of generation of cash flow in relation to the amount of capital invested. Specifically, Marriott International’s annualized return on capital as of June 2018 was 20.05 percent. The company has continued to record growth as its ROIC has since increased to 11.24, with a weighted average cost of capital of approximately 9.62 percent. In comparison, Accor SA reported a weighted average cost of capital of 5.89 and a net return on investment of 5.99 while Wyndham Worldwide had a ROIC of 15.17 for the period ended June 2018 (Wyndham Destinations, 2018).

Various profitability ratios also place Marriott International considerably above its competitors as shown in Figure 4. Although the company’s operating profit margin declined between 2015 and 2016, it managed to recover and record increases in its operating profit margin to levels that surpassed those of 2015. Company figures were also significantly above industry averages during this period. The company’s quick and current ratios indicate a liquidity problem due to an excess of its current liabilities over the current assets. Typically, a ratio greater than or equal to one is desirable since it indicates an organization’s capacity to meet its short-term obligations. Accordingly, in the event that the firm fails to find an alternative to meet its obligations, it may have to dispose some of its assets to service upcoming debts just as it has been forced to do in the past.
Company Outlook

The company’s exemplary performance in the first quarter of 2018 compelled the management to revise the annual revenue per available room by 1.5 percent. This position was facilitated by the healthy status of the US economy, including consumer spending habits, rise in government expenditure, stable labor market, and increased consumers’ confidence. The economy is predicted to at a steady rate of four percent as per the GDPNow forecast of the Atlanta Federal Reserve, which indicates a sharp increase from the actual growth rate of 2.3 percent. The situation has particularly favored the hotel industry.

The United States has had an increasingly appealing supply and demand environment since 2010, with the latter often outgrowing the former. Accordingly, Marriott International can expect a significant growth in demand in 2019 despite the declining gap between demand and supply and well as a general decrease in occupancy across the industry. The management is convinced that its high average daily rates will continually generate high revenues per available room. Further, the company is expected to continue on its expansion path by acquiring new properties or merging with existing ones, especially in outlying regions around major cities as well as other virtually untapped or unsaturated emerging markets, such as the Middle East, Asia Pacific, Africa, Russia, and Brazil (Schawbel, 2013).
The firm is also expected to increase its investments in India and China. The latter has recently become the world’s most powerful and significant outbound destination for leisure and hotels. Its joint venture with Alibaba is expected to increase the company’s market share, reduce its cost of distribution, and expend membership to its loyalty programs. Indeed, Marriott Rewards has turned out to be one of the company’s biggest assets. It has about 100 million active members and is growing at a steady rate of about one million new subscribers monthly since the acquisition of Starwood Hotels and Resorts. The CEO announced plans to unify this program and its benefits across all the hotels to offer more meaningful perks to loyal clients by allowing them to earn about 20% on every dollar. Under the new global program, members would be able to book rooms or redeem points across its 30 brands that cover over 6,500 properties spanning 127 nations (Nyangwe & Buhalis, 2018).
Marriott International’s three-year plan, which was unveiled in 2016, included strategies for increasing the company’s growth by adding between 285,000 and 300,000 rooms by 2019. These additional rooms are expected to generate a record 675 million US dollars in annual management fees. Moreover, the firm’s diluted earnings per share will grow by 0.55 US dollars by 2019, which represents a compounded growth rate of between 17 to 21 percent since 2016. EBITDA is expected to increase by about 10 percent while the net income will grow by between 11 and 14 percent as compared to the performance of 2016.

References

Guru Focus. (2018). Marriott International (MAR) Analysis and Valuations. [online] Available at: https://www.gurufocus.com/analysis/MAR&subtab=val [Accessed 22 Oct. 2018].
Guru Focus. (2018). Marriott International Current Ratio (MAR). [online] Available at: https://www.gurufocus.com/term/current_ratio/MAR/Current%252BRatio/Marriott+International+Inc [Accessed 22 Oct. 2018].
Guru Focus. (2018). Marriott International Current Ratio (MAR). [online] Available at: https://www.gurufocus.com/term/current_ratio/MAR/Current%252BRatio/Marriott+International+Inc [Accessed 22 Oct. 2018].
Hormby, S., Morrison, J., Dave, P., Meyers, M. and Tenca, T., 2010. Marriott international increases revenue by implementing a group pricing optimizer. Interfaces, 40(1), pp.47-57.
Marriott International, Inc. (2018). Investor Relations. [online] Marriott International. Available at: https://marriott.gcs-web.com/ [Accessed 22 Oct. 2018].
Marriott International, Inc. (2018). Our Story. [online] Marriott International. Available at: https://www.marriott.com/about/culture-and-values/history.mi [Accessed 22 Oct. 2018].
Marriott, B. (2016). Our Competitive Advantage – Marriott on the Move. [online] Blogs.marriott.com. Available at: http://www.blogs.marriott.com/marriott-on-the-move/2016/04/our-competitive-advantage.html [Accessed 22 Oct. 2018].
Nyangwe, S. and Buhalis, D., 2018. Branding Transformation Through Social Media and Co-creation: Lessons from Marriott International. In Information and Communication Technologies in Tourism 2018 (pp. 257-269). Springer, Cham.
Schawbel, D. (2013). J. W. Marriott Jr: From Root Beer Stand to Global Hotel Company. [online] Forbes. Available at: https://www.forbes.com/sites/danschawbel/2013/02/04/j-w-marriott-jr-from-root-beer-stand-to-global-hotel-company/#36bf04775e1f [Accessed 22 Oct. 2018].
Wyndham Destinations (2018). Wyndham Destinations Investor Relations Corporate Governance. [online] Investor.wyndhamdestinations.com. Available at: http://investor.wyndhamdestinations.com/phoenix.zhtml?c=200690&p=irol-govhighlights [Accessed 22 Oct. 2018].

Appendices
Figure 1: Competitive Analysis

Figure 2: Marriott International Market Capitalization

Figure 3.1: Return on Equity

Figure 3.2: Return on Equity

Figure 3.3. Marriott International, Inc.’s Return on Investment between 2010 and 2018

Figure 3.4: Marriott International, Inc.’s Return on Invested Capital

Figure 4: Profitability Ratios for Marriott International

Figure 5: Predictions for 2018 and 2019