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Hyatt Reports Mixed 2Q

Zacks Equity Research

Hyatt Hotels Corporation (H) reported second quarter 2012 adjusted earnings of 24 cents per share, beating the Zacks Consensus Estimate by a penny. However, the adjusted number missed the year-ago earnings of 27 cents by 11.1%. On a reported basis, the company earned 24 cents per share compared with 22 cents in year-ago quarter.

Quarter Highlights

Revenue jumped 8.3% year over year to $1,014.0 million as revenue per available room (RevPAR) witnessed solid improvement across all segments. However, revenue missed the Zacks Consensus Estimate of $1,033.0 million.

Owned and Leased Hotels Segment

Worldwide revenue for owned and leased hotels increased 9.1% year over year to $528.0 million. Worldwide RevPAR for Hyatt branded same-store hotels increased 7.6% to $138.77 million. Occupancy increased 360 basis points (bps) to 79.3% and Average Daily Rate (:ADR) climbed up 2.6% to $174.94 million.

North American Management and Franchising Segment

Revenue from management and franchise fees in North America increased 17.9% year over year to $66.0 million. Same-store North American full-service hotels experienced an 8.7% year-over-year increase in RevPAR to $133.44, while select-service hotels RevPAR increased 6.4% to $80.11 million. Occupancy expanded 290 bps and 70 bps in full-service and select-service hotels, respectively, while ADR increased 4.8% to $172.29 and 5.4% to $102.32, respectively.

International Management and Franchising Segment

Revenue from management and franchised fees were up 2.6% year over year to $40.0 million. Same-store international hotels RevPAR increased 3.8% year over year to $157.84 million. Occupancy hiked 250 bps to 67.0%, while ADR remained flat at $235.57 million.

Hotel Update

Hyatt opened five new properties during the quarter, four in the North American segment and one in the International segment. Hyatt disposed one property during the quarter from its International segment portfolio. At the end of the quarter, Hyatt’s pipeline included 492 hotels, comprising almost 135,327 rooms.

The company is focused on its strategy of expanding in new markets, of which around 75% is expected to be on the international front. As of June 30, 2012, Hyatt has signed management or franchise contracts for more than 175 hotels across all brands.

Liquidity

At quarter-end, Hyatt had cash and cash equivalents of $400.0 million (including investments in highly-rated money market funds and similar investments). Total debt was around $1.2 billion at the end of the quarter. Hyatt has around $1.4 billion available under its revolving credit facility.

2012 Outlook

Hyatt expects adjusted SG&A expense to be approximately $320.0 million. The company revised the depreciation expense guidance and now expects it to be around $360.0 million, up from the previous guidance of $350.0 million.  

The company reaffirmed the capital expenditure and interest expense guidance. Hyatt expects capital expenditure and interest expense to be around $360.0 million and $70.0 million, respectively. The company also reiterated its previous guidance of opening over 20 hotels in 2012.

Our Take

We remain bullish on the stock given the company’s strong expansion plan, significant international exposure, portfolio restructuring and increase in RevPAR and occupancy across the segments. Hence, we expect analysts to revise their estimates upward in the coming days. Currently, the Zacks Consensus Estimate for 2012 and 2013 are pegged at 63 cents and 96 cents, respectively.

One of Hyatt’s competitors - Starwood Hotels & Resorts Worldwide Inc. (HOT) - reported second quarter 2012 adjusted earnings per share of 70 cents, which surpassed the Zacks Consensus Estimate by 8 cents.

Hyatt currently carries a Zacks #3 Rank, implying a short-term ‘Hold’ rating. We also reiterate our long-term Neutral recommendation on the stock.

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