Why Is Marriott (VAC) Down 36.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Marriott Vacations Worldwide (VAC). Shares have lost about 36.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Marriott due for a breakout? 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, Up Y/Y

Marriott Vacations Worldwide Corporation reported mixed results for fourth-quarter 2019, wherein earnings missed the Zacks Consensus Estimate but revenues beat the same.

Adjusted earnings of $2.43 per share lagged the consensus mark of $2.58 by 5.8% but improved 63% year over year. Quarterly revenues were $1,145 million, which beat the Zacks Consensus Estimate of $1,134 million by 1% and surged 9% from the year-ago quarter’s figure. The upside can be attributed to improvement in vacation ownership contract sales.

Segmental Performances

Vacation Ownership: Consolidated Vacation Ownership contract sales totaled $394 million, up 10% year over year on a combined basis. Revenues, excluding cost reimbursements, increased 9% year over year. Consolidated contract sales rose 10% on a year-over-year basis. Legacy-MVW contract sales amounted to $223 million, up 9.3% year over year. Legacy-MVW North America volume per guest (VPG) amounted to $3,499 million, up 9% year over year.

Rental revenues in the fourth quarter were $139 million, up nearly 18.8% from year-ago quarter’s figure.

On a combined basis, the segment’s adjusted EBITDA increased 16.8% year over year to $226 million in the fourth quarter. Adjusted EBITDA margin improved 60 basis points from the year-ago quarter’s figure, excluding cost reimbursements.

Exchange & Third-Party Management: The segment’s revenues totaled $103 million in the quarter, down from year-ago quarter’s figure of $121 million. Total Interval Network active members were 1.7 million at the end of the quarter and average revenue per member was $38.4.

The segment’s adjusted EBITDA, on a combined basis, was $50 million. The figure declined 13.8% year over year (after excluding VRI Europe from year-ago quarter’s level).

Corporate and Other results

The segment, which primarily consists of general and administrative costs, improved $6 million year over year, courtesy of synergy savings and decline in compensation related expenses. This was partially offset by normal inflationary cost increases.

Expenses & EBITDA

Total expenses in the quarter amounted to $991 million, up 5.5% year over year. Rise in expenses were caused by an increase in the cost of vacation ownership products, and high rental and financing costs. Higher marketing and sales expenses, and management and exchange costs affected total costs. The company’s adjusted EBITDA in the fourth quarter was $207 million, which surged 15% from the year-ago quarter.

Balance Sheet

Cash and cash equivalents, as of Dec 31, 2019, was $287 million compared with $231 million as of 2018 end. Inventory was $846 million. The company had $4.1 billion in debt outstanding (net of unamortized debt issuance costs) at the end of the fourth quarter.

2019 Highlights

Adjusted earnings of $7.81 increased 33% year over year. Revenues also grew 42% year over year to $1.5 billion. Adjusted EBITDA increased 81% from a year ago to $758 million in 2019.

2020 Outlook

The company’s 2020 guidance does not include any additional impact from the coronavirus outbreak.

For 2020, the company expects adjusted earnings of $9.01-$9.72 per share. Adjusted EBITDA is projected between $820 million and $860 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 7.16% due to these changes.

VGM Scores

Currently, Marriott has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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