Gross fees rose 13 percent and franchise fees 19 percent. Reported net income rose less than 1 percent. The shares traded down more than 7 percent by late morning.
Marriott International earned an adjusted $3.19 a share, ahead of every published estimate, and raised its full-year outlook for both room revenue and earnings. The shares fell more than 7 percent by late morning on August 3 and sat at the session low. That gap frames the quarter, because the fee business strengthened while reported profit stayed flat and the third-quarter guide came in under consensus.
Where the 20 percent came from
Adjusted earnings per share rose 20.4 percent. Reported net income rose 0.4 percent, to $766 million from $763 million. Reported operating income fell 0.6 percent. Three disclosed factors explain the distance.
The first is the direction of the adjustments. Last year adjusted earnings of $2.65 a share sat below reported earnings of $2.78. This year the order flipped, with $3.19 adjusted against $2.90 reported. About a quarter of the 20 percent growth rate comes from that flip.
The second is cost reimbursement. Reimbursed expenses ran $42 million above reimbursement revenue this quarter. A year earlier the revenue ran $58 million above the expenses. That $100 million swing cut reported operating income and was removed from adjusted results. Marriott runs these programs for owners at no mark-up, so the exclusion is fair and clearly explained.
The third is share count. Diluted shares fell 3.7 percent to 264.5 million. Reported earnings per share rose 4.3 percent while net income was flat, so buybacks account for nearly all of the reported per-share gain. Marriott bought 3.0 million shares for $1.1 billion in the quarter and $2.2 billion through July 29.
One charge stayed inside the adjusted number. A $27 million litigation accrual, worth $20 million after tax and $0.08 a share, never appears on the adjustment list. The $68 million impairment on a hotel sale was excluded, which is why depreciation and amortization more than doubled to $115 million.
The operating gain underneath is still real. Gross fees reached $1.58 billion and adjusted operating margin widened to 66.0 percent from 65.5 percent.
The revenue shortfall sits on a pass-through line
Total revenues came in at $7.07 billion, up 4.8 percent, below estimates near $7.19 billion. Several outlets led with that shortfall.
Cost reimbursement revenue made up $5.06 billion, or 71.5 percent of the total. Marriott collects these amounts to cover property-level and central programs run for owners, adds no mark-up, and says they are not built to affect its economics either way. Excluding them, adjusted revenues rose 11.1 percent to $2.01 billion.
The shortfall is real in the accounts and tells very little about the business. The adjusted figure belongs in the same sentence.
Franchise fees carried the fee line, rising 19 percent to $1.02 billion. Base management fees rose just 1 percent. Marriott credits higher co-branded card fees, room growth and room revenue. The strength came from franchising and loyalty, not from broad growth in managed hotels.
Rates rose while occupancy slipped
Worldwide RevPAR rose 3.4 percent. Average daily rate rose 3.5 percent and occupancy fell 0.1 points to 71.6 percent. Pricing supplied all of the growth.
The domestic result was stronger and broader. RevPAR in the United States and Canada rose 5.0 percent, on a 4.7 percent rate gain and 0.2 points of occupancy. Luxury led at 9.1 percent, ahead of premium at 5.0 percent and select service at 4.4 percent. Luxury delivered rate and volume together, which the lower tiers did not.
International RevPAR fell 0.5 percent. Europe rose 4.2 percent, Asia Pacific excluding China rose 5.3 percent, Greater China rose 3.2 percent, and the Caribbean and Latin America rose 3.0 percent. The published Middle East and Africa line fell 33.1 percent, with occupancy down 15.8 points and rate down 12.1 percent.
Chief Executive Anthony Capuano described a 43 percent Middle East decline inside an EMEA drop of more than 5 percent. Neither figure appears in the schedules, which report Middle East and Africa as one line and Europe on its own. The 43 percent belongs to management. The 33.1 percent is the published statistic.
The two published series also diverge. International company-operated RevPAR fell 2.9 percent against the 0.5 percent systemwide decline, and the United States and Canada rose 6.7 percent against 5.0 percent. Marriott leads with systemwide.
A record pipeline and a slower opening pace
The pipeline reached 4,186 properties and about 629,000 rooms, a record and nearly 7 percent higher than a year ago. Rooms under construction reached 279,000, or 44 percent. More than half the pipeline is outside the United States and Canada. Conversions supplied over a third of first-half signings and 40 percent of openings.
That total includes 253 properties and more than 34,000 rooms approved but not yet under signed contract. Marriott discloses this plainly, and the figure should not be read as fully contracted.
Net rooms grew 4.5 percent, against 4.7 percent a year earlier. Marriott added about 17,900 net rooms, roughly 11,000 of them international. Guidance for year-end room growth now points to the low end of the 4.5 to 5 percent range, which makes it a slowdown.
Signings hit a record while room growth eased. Commitments are piling up faster than they open.
The second half carries the burden
Marriott lifted full-year RevPAR growth to 3.0 to 3.5 percent from 2 to 3 percent, and full-year adjusted earnings per share to $11.64 to $11.81 from $11.38 to $11.63. Adjusted EBITDA guidance moved to $5.97 billion to $6.03 billion. Planned capital return rose above $4.5 billion and investment spending to $1.25 billion to $1.35 billion.
The quarterly guide points the other way. Third-quarter adjusted earnings of $2.74 to $2.82 sit below the $2.87 figure Reuters attributes to LSEG, and the top of the range falls short of it. Third-quarter adjusted EBITDA of $1.44 billion to $1.47 billion implies growth of 6.7 to 8.8 percent, against 12.5 percent in the second quarter and 14 percent in the first half.
Both statements hold at once. The annual raise banks a strong second quarter and adds part-year card economics. The quarterly range shows conversion easing. First-half adjusted earnings reached $5.91 a share, so the annual guide less the first half and the third-quarter range leaves roughly $2.91 to $3.16 for the fourth quarter on the company's own numbers.
Two disclosures stay thin. The new United States co-branded card deals with JPMorgan Chase and American Express appear in the franchise-fee explanation and in the guidance assumptions, yet the release carries no term, no economics and no fee figure. The hotel sale and the Lefay investment enter guidance without detail. The 10-Q filed the same morning should close both gaps.
Debt rose to $16.9 billion from $16.2 billion at year end, cash reached $500 million, and net interest expense rose to $201 million from $191 million. Capital return is running well ahead of last year against a larger balance sheet.
The evidence that would settle this is specific. Occupancy that climbs instead of holding. Third-quarter earnings near the top of the range. A Middle East that steadies. Pipeline rooms opening faster than 4.5 percent. And published economics for the card agreements.