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Soft Owned and Leased Sales to Hurt Hyatt's (H) Q2 Earnings

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Soft Owned and Leased Sales to Hurt Hyatt's (H) Q2 Earnings

Lower revenues from the owned and leased segment, along with EBITDA margin pressure, are likely to hurt Hyatt's (H) second-quarter earnings.

Hyatt Hotels Corporation H is scheduled to report second-quarter 2018 numbers on Jul 31, after the market closes.

The company’s ongoing asset recycling program is helping, in terms of strengthening liquidity, and protecting current liabilities, with a combination of cash and liquid assets. However, the continual disposition of assets, without replacement by acquisitions, is likely to have weighed on the company’s second-quarter revenues, which, in turn, might have affected earnings.

However, solid expansion and strategic decisions have helped the company’s shares rally 10.5% year to date against the industry’s collective decline of 10.3%.

Revenues Likely to be Affected

The Zacks Consensus Estimate for second quarter revenues is pegged at $1.1billion, reflecting a 4.2% decline from the second quarter of 2017. We believe, primarily, the decline in revenues should have stemmed from the company’s lower revenues from owned and leased hotels, which declined 11.9% year over year in the first quarter of 2018 as well.

It is to be noted that Hyatt has a strategy of asset sales that will strengthen its management and licensing arrangements instead of direct ownership of selective assets. Also, the company’s asset sales are outnumbering its asset possessions through new mergers. While this may increase the company’s franchise fees and reduce earnings volatility in the long run, short-term revenues are likely to be affected.

Evidently, consensus estimates predict owned and leased revenues to decline 16.8% year over year in the second quarter while management and franchise fees are expected to increase 9.2% in the quarter under review compared with the second quarter of 2017.

How Will the Bottom Line Shape Up?

Apart from lower revenues negatively affecting earnings in the second quarter, we also believe that lower EBITDA margin may have caused earnings to decline. In the first quarter of 2018, earnings fell 51.5% year over year, reflecting pressure on the quarter’s EBITDA margin. The trend is likely to have continued in the second quarter as the Zacks Consensus Estimate for the second quarter’s earnings of 48 cents suggests a 7.7% decrease from the year-ago quarter.

Moreover, modest growth rate in the United States is also likely to have affected the company’s profitability in the second quarter of 2018.

Quantitative Model Predicts a Beat

Hyatt has the right combination of the two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Earnings ESP: The company has an Earnings ESP of +14.58%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Hyatt has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially, when the company is seeing negative estimate revisions.

Hyatt Hotels Corporation Price and EPS Surprise


Hyatt Hotels Corporation Price and EPS Surprise | Hyatt Hotels Corporation Quote

Other Stocks to Consider

Here are a few other hotel stocks that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Extended Stay STAY has a Zacks Rank #2 and an Earnings ESP of +3.38%. The hotel will report its quarterly numbers on Jul 25.

Hilton Grand Vacations HGV has an Earnings ESP of +11.36% and a Zacks Rank #2. The company is slated to report its quarterly numbers on Aug 1.

Marriott Vacations Worldwide VAC is scheduled to report its quarterly numbers on Aug 2. The company, carrying a Zacks Rank #3, has an Earnings ESP of +0.91%.

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Hyatt Hotels Corporation (H) : Free Stock Analysis Report
Marriot Vacations Worldwide Corporation (VAC) : Free Stock Analysis Report
Extended Stay America, Inc. (STAY) : Free Stock Analysis Report
Hilton Grand Vacations Inc. (HGV) : Free Stock Analysis Report
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