Marriott Vacations Gains From ILG Buyout Despite High Debt
Marriott Vacations Worldwide Corporation VAC continues to derive momentum from various sales-building capacities, digital innovations and acquisition of ILG. However, high expenses and debt continues to pressurize the company.
Let us delve deeper into factors that are currently at play, shaping Marriott Vacations’ overall performance.
Strong Top-Line Building Initiatives
In order to fortify revenues, the company has been remodeling the business framework. It turned into a more point-based and capital-efficient system, with less dependence on the securitization market. It is also exploring ways out of Europe as a transformation initiative.
The company’s revenues surpassed the Zacks Consensus Estimate in three of the trailing four quarters. In the fourth quarter of 2018, revenues of $1,052 million outpaced the consensus estimate of $1,043 million by 0.9%. Revenues also increased 87.2% from the year-ago quarter, backed by revenue growth across segments.
Meanwhile, Marriott Vacation has also been focusing on digital expansion and innovation of latest techniques. By the end of the third quarter of 2019, it expects to launch the digital marketing program with Marriott MAR, which will allow users of Marriott.com to receive attractive offers and promotions.
Notably, despite not owning an online marketing presence, the company’s tour package pipeline increased 9% year over year in the fourth quarter of 2018. Marriott Vacations is also venturing opportunities in other social media and digital advertising platforms. Management is excited to further integrate data analytics into the company's marketing strategy.
ILG Acquisition Encourages
Marriott Vacations completed the acquisition of ILG, Inc., a provider of professionally delivered vacation experiences in September 2018. Post the completion of the acquisition, Marriott Vacations’ pipeline expanded to more than 100 resorts. The company expects to realize greater cost synergies from the ILG acquisition in 2019.
In fact, management expects to realize merger cost synergies of $100 million in the long run. Overall, the company hopes to recognize $35-$40 million in savings in 2019 and the end of the year at $50 million synergy run rate. The final $50 million of synergies include leveraging and consolidating technology applications, HR and payroll platforms, and financial & analysis integration. Additional savings will derive from sales and marketing.
Despite cost synergies from the ILG acquisition, Marriott Vacations has been bearing the brunt of high expenses. In 2018, total expenses increased 39.4% year over year due to an increase in the cost of vacation ownership products as well as high rental, financing and administrative costs. Increased marketing and sales expenses along with management and exchange costs also affected total costs.
Owing to high cost burden, shares of Marriott Vacations have lost 25.7% over the past year, underperforming the industry’s 8.8% decline.
Also, as the company is highly capital intensive, it faces a lot of debt burden. Its total net debt outstanding at the end of 2018 was roughly $3.8 billion, consisting primarily of $2.1 billion of corporate debt, most of which resulted from the ILG acquisition and $1.7 billion associated with non-recourse securitize notes receivable.
Meanwhile, Marriott Vacations continues to face competition from new channels of distribution in the travel industry as well as the likes of Hyatt H and Hilton HLT. Unless this Zacks Rank #3 (Hold) company counters this competition with appropriate strategies, it may not be able to recover in times of macroeconomic turbulence.
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