Marriott Vacations raises profit expectations. Its cash target narrows.
The cash forecast’s upper end falls despite stronger contract sales and earnings. Working capital is central to the comparison.
Marriott Vacations Worldwide raised its annual contract-sales and earnings forecasts while cutting the upper end of its adjusted free-cash-flow outlook. It now expects $410 million to $430 million of adjusted free cash flow, compared with $410 million to $460 million in August.
The vacation-ownership company now expects more sales and higher adjusted net income. Its cash forecast moves in the other direction.
| Measure | August | Current |
|---|---|---|
| Contract sales | $2,080 to $2,115 | $2,120 to $2,140 |
| Adjusted net income | $300 to $330 | $315 to $335 |
| Adjusted free cash flow | $410 to $460 | $410 to $430 |
Where the extra cash goes
Research by Ticker Byline shows that a comparison of the current and August presentations identifies a larger cash outflow for working capital and other items. Working capital reflects money tied up in day-to-day operations.
Working capital and other items now imply an outflow of $115 million to $125 million, compared with $60 million to $80 million previously. Financing activity contributes $50 million to $55 million, versus $45 million to $55 million. Lower expected cash taxes and capital spending offset part of the additional cash demand.
The company has not assigned the whole change in working capital and other items to one cause. Its new earnings outlook also includes hurricane-related disruption, alongside stronger vacation-ownership sales.
More sales also create customer loans
Third-quarter contract sales rose to $565 million from $439 million. More sales are being financed: the company said an additional $60 million of customer loans contributed to a sales-reserve rate of 14.8%, up from 13.4% in the second quarter. That reserve accounts for expected loan losses. Management expects the additional loans to generate financing profit over time.
Reported net income attributable to common stockholders was $82 million, compared with a $2 million loss a year earlier. Adjusted net income rose to $98 million from $66 million.
Its cash measure includes financing
Nine-month operating cash flow was $204 million. Company-defined free cash flow was $435 million and adjusted free cash flow $449 million. The company borrows against pools of customer loans, a process called securitization. Its free cash flow includes that borrowing, less repayments, alongside capital spending and other items. The adjusted version makes further changes, including changes in how much it could borrow against eligible loans.
That financing structure is central to a business that lends to vacation-ownership buyers. At September 30, cash and cash equivalents were $229 million, with restricted cash reported separately. Corporate debt and securitized receivables funding also appear separately on the balance sheet.
The Marriott Vacations Worldwide Corporation company profile follows the earnings, cash and financial position behind the announcement.