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Why Is Marriott (VAC) Up 3.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Marriott Vacations Worldwide (VAC - Free Report) . Shares have added about 3.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Marriott due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Marriott Vacations Q4 Earnings Miss Estimates, Decline Y/Y

Marriott Vacations reported mixed results for fourth-quarter 2020, with earnings missing the Zacks Consensus Estimate and revenues beating the same. However, the top and the bottom line declined year over year due to the effects of the pandemic.

Nonetheless, the management stated to have witnessed sequential improvements in occupancy, exchange transactions and contract sales. Given a rise in vaccinations, the company is optimistic about business recovery and pent-up travel demand. Also, margin improvements and sales growth are likely, following the closing of Welk Resorts acquisition.

Q4 Earnings and Revenues

In the quarter under review, adjusted loss per share came in at 5 cents, wider than the Zacks Consensus Estimate of a loss of 1 cent. In the prior-year quarter, the company reported adjusted earnings of $2.43 per share.

Total revenues of $747 million beat the consensus mark of $724 million by 3.2%. However, the top line declined 33.1% on a year-over-year basis.

Segmental Performances

Vacation Ownership: During the fourth quarter, the segment’s revenues declined 34.9% year over year to $646 million compared with $992 million in the prior-year quarter. Revenues, excluding cost reimbursements, fell 50% year over year due to 6% decline in financing revenues, partially offset by 3% growth in management fees. The segment’s adjusted EBITDA came in at $73 million compared with $224 million in the prior-year quarter.

Exchange & Third-Party Management: The segment’s revenues totaled $73 million in the fourth quarter, down 29.1% from $103 million in the prior-year quarter. The downside was primarily caused by lower exchange and rental transactions as well as lower management fees due to the impact of the coronavirus pandemic. During the fourth quarter, total Interval Network active members declined 9% (compared with the previous quarter’s levels) to 1.5 million, while interval International average revenue per member fell 5% to $36.62. The segment’s adjusted EBITDA declined 26.3% year over year to $28 million.

Corporate and Other results

During the fourth quarter, General and administrative costs declined $27 million year over year, courtesy of synergy savings, decline in compensation-related expenses as well as lower spending across technology, travel, and training owing to the pandemic.

Expenses & EBITDA

Total expenses in the quarter declined 24.1% year over year to $730 million compared with $962 million reported in the year-ago quarter. The company’s adjusted EBITDA in the fourth quarter came in at $72 million compared with $207 million reported in the year-ago quarter.

Balance Sheet

As of Dec 31, 2020, cash and cash equivalents were $524 million compared with $287 million as of Dec 31, 2019. The company had $4.3 billion in debt outstanding (net of unamortized debt issuance costs) at the end of the fourth quarter, up $0.2 billion from 2019-end. This includes $2.7 billion of corporate debt and $1.6 billion of non-recourse debt related to its securitized notes receivable. Thanks to uncertainties related to the pandemic, the company temporarily suspended its share repurchases and dividend payouts.

2020 Highlights

Total revenues in 2020 came in at $2,886 million compared with $4,259 million in 2019. Adjusted EBITDA in 2020 came in at $235 million compared with $758 million in 2019. In 2020, adjusted loss per share, came in at 45 cents against earnings of $7.81 in the previous year.

Operational Update

As of Dec 31, 2020, majority of the company's sales centers under the Vacation Ownership business remained open. The company resumed operations in its California sales centers. However, sales centers were closed in Kauai and Hawaii due to government restrictions. Marriott Vacations stated that more than 90% of its resorts were reopened in its Interval International business. The company stated to have witnessed sequential improvement in resort occupancies.

During the fourth quarter, the company entered into a definitive agreement to acquire Welk Resorts. Priced at approximately $430 million (including 1.4 million of common shares), the company expects to close the deal by the second quarter of 2021. Following the integration of the business, the company is optimistic about sales growth and margin improvement opportunities derived from the same.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -190.17% due to these changes.

VGM Scores

At this time, Marriott has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Marriott has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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