Marriott Vacations Worldwide Corporation (NYSE: VAC), the leading global pure-play vacation ownership company, reported second quarter 2012 net income of $8 million, down from $16 million the previous year's quarter. However, on a bright note, North America segment timeshare sales increased 10 percent to $141 million - with volume per guest (VPG) increasing 14 percent year-over-year to $2,968.
Overall revenues for the second quarter, which ended June 15, 2012, were $383 million, including $79 million in cost reimbursements, a $3 million year-over-year increase due to "higher rental revenues, resort management and other services revenues, and cost reimbursements. These increases were partially offset by lower revenue from the sale of vacation ownership products and lower financing revenues from lower interest income on a declining notes receivable portfolio, according to Marriott Vacations.
Other second quarter 2012 highlights were:
Adjusted EBITDA, as adjusted for organizational and separation related costs and other charges, totaled $28 million, a 27 percent increase from the second quarter of 2011, on an adjusted pro forma basis.
Adjusted development margin increased to 12.8 percent in the second quarter of 2012 from 5.9 percent in the second quarter of 2011; North America adjusted development margin increased to 17.3 percent from 9.1 percent in the second quarter of 2011.
On June 28, 2012, subsequent to the end of the second quarter, the company completed its first securitization of vacation ownership notes receivable as an independent public company securitizing $250 million of notes at a weighted average interest rate of 2.625 percent and a 95 percent advance rate.
Total timeshare contract sales were $168 million in the second quarter, a 3 percent increase from $163 million in contract sales in the second quarter of 2011, driven by a 10 percent increase in contract sales in the North America segment, partially offset by lower contract sales in the Europe, Luxury and Asia Pacific segments.
Development margin as reported was $16 million, $6 million higher than the second quarter of 2011, driven by reductions in both the cost of vacation ownership products sold and more efficient marketing and sales spending, partially offset by the impact of lower contract sales in the Europe, Luxury and Asia Pacific segments, as well as the impact to the prior year quarter of a true-up to the notes receivable reserve in the company's "Luxury segment."
"We generated solid results during the second quarter, with continued strength in our key North America segment again this quarter," said Stephen P. Weisz, president and chief executive officer. "Year-over-year and sequential quarter growth in both North America VPG and contract sales underscores the success of our marketing and sales strategy and the continued customer appeal of our Marriott Vacation Club Destinations program.
"Building on the first quarter's strong performance, we continued to improve our margin from the sale of vacation ownership products, which we refer to as development margin. Margin expansion remains a key strategic initiative and we remain on track to achieve our 2012 target of over 12 percent. "Additionally, I am happy to report we completed our first notes receivable securitization as an independent public company subsequent to the end of the second quarter of 2012. With a 95 percent advance rate and a weighted average interest rate of 2.625 percent, this was one of the strongest notes receivable securitizations in our history, demonstrating the quality of our underlying vacation ownership notes receivable and our continued ability to generate significant cash flow through our financing arm."
In other financial news, Marriott's rental revenues totaled $54 million, a 17 percent increase from the second quarter of 2011, reflecting higher demand for rental inventory. Meanwhile, resort management and other services revenues totaled $62 million, a 9 percent increase over the second quarter of 2011, reflecting higher management fees, higher fees in connection with the company's Marriott Vacation Club Destinations program, and higher ancillary revenues from food and beverage and golf operations.
"We are executing well on our strategies, even in the face of an unstable global economy," Weisz concluded. "With continued momentum in contract sales growth and development margin expansion, we remain confident in the outlook for 2012 and continue to believe that we will be at the higher end of the 2012 adjusted EBITDA guidance range. In addition, based upon stronger cash flows from our financing business, including favorable terms from our successful notes receivable securitization, as well as other positive cash flow trends, we are raising our adjusted free cash flow guidance for 2012 to $130 million to $145 million from $85 million to $100 million."
Marriott Vacations Worldwide offers more than 60 resorts and more than 420,000 owners and members. Its brands include: Marriott Vacation Club, The Ritz-Carlton Destination Club and Grand Residences by Marriott.