Hyatt Hotels Raises Its Outlook as Pricing and Occupancy Rates Improve
The hotel business is looking up. Hyatt Hotels (NYSE: H), one of the world's biggest hospitality chains, this week announced broadly improving operating trends, which the company paired with an aggressive new promise to return capital to shareholders. Hyatt also raised its 2017 outlook for the second straight time this year.
More on that improving forecast in a moment. First, here's how the latest headline numbers compare to the prior-year period:
Metric | Q3 2017 | Q3 2016 | Year-Over-Year Change |
|---|---|---|---|
Revenue | $1.12 billion | $1.09 billion | 3% |
Net income | $16 million | $62 million | (74%) |
EPS | $0.13 | $0.47 | (72%) |
Data source: Hyatt. EPS = earnings per share.
What happened this quarter?
Hyatt benefited from accelerating sales and profit gains at its existing properties. Its results were also boosted by a stepped-up pace of hotel launches that management plans to keep going.
Image source: Getty Images.
Key highlights of the quarter include:
Revenue per average room night (RevPAR) rose 1.7% and occupancy rates improved to 78% from 77% a year ago.
Management and franchise fees jumped 12% to $122 million.
Adjusted earnings fell as the company went up against a prior-year period that was lifted by the 2016 Olympic Games. The decline pushed adjusted profit margin down nearly 3 full percentage points to 27.5% of sales.
Average room prices worldwide ticked up to $180 from $179.
Hyatt pushed its hotel base higher by 9%, or nine properties, and its inventory of rooms up by 6.5%, or 1,934 rooms.
The company funded $250 million in stock buybacks in part through funds raised by the sale of two of its properties.
What management had to say
CEO Mark Hoplamazian said the numbers show Hyatt's strengthening operating trends. "Our third quarter results reflect continued, upward momentum in our business, with solid systemwide RevPAR growth, a double-digit percentage increase in our fee revenue and an expansion of our development pipeline."
Management also announced a new real estate sales plan that should allow for higher cash returns to investors over the coming years. "We are fulfilling our commitment to be a net seller of assets in 2017 and return substantial capital to shareholders," Hoplamazian said. "We plan to extend this strategy to sell roughly $1.5 billion of real estate over the next three years," he continued, "which we are confident will unlock additional shareholder value and drive the growth of our business."
These sales fit into Hyatt's broader "asset recycling" program, through which management aims to be a net seller of properties this year after finishing 2016 as a net buyer. Over time, the program is allowing Hyatt to shift its portfolio toward the luxury end of the market.
Looking forward
Hoplamazian and his team boosted several pieces of their 2017 outlook in response to the latest business trends. Their development pipeline is progressing faster than expected, and so they now expect to open a few more properties by the end of the year.
RevPAR is targeted to rise by between 2.5% and 3%, compared to the prior forecast of 1% to 3%Â and the 2.5% rate it managed in fiscal 2016. Hyatt also sees both net income and adjusted earnings coming in higher than they had predicted, in part due to lower capital expenditures.
The hotel chain is still on track to set a record of 60 new property launches this year, but its long-term development pipeline is even more aggressive. There are currently 315 hotels (up from 300 last quarter) that are under contract but haven't yet started construction. Altogether, they represent 69,000 rooms that will be added to Hyatt's base over the years ahead, either to boost its presence in existing markets or to expand into new countries and metropolitan areas. That bold growth rate will be easier to maintain, and pay for, as its core business gets more profitable.
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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Hyatt Hotels. The Motley Fool has a disclosure policy.
