Hyatt (H) Q3 Earnings Miss, Revenues Beat on Solid RevPAR - Analyst Blog

Hyatt Hotels Corporation (H) reported mixed third-quarter 2014 results, as earnings missed the Zacks Consensus Estimate, while revenues beat.

Adjusted earnings of 20 cents per share missed the Zacks Consensus Estimate by 23.1% and declined 13% from the year-ago figure of 23 cents. In our view, the lower margins in the company's Southeast Asia, China, Australia, South Korea and Japan (ASPAC) and Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) segments hurt earnings in the quarter.
 

Revenues jumped 7.6% year over year to $1.104 billion as Further, revenues beat the Zacks Consensus Estimate of $1.096 billion by 0.7%.the company's revenue per available room (RevPAR) witnessed solid improvement across all segments.

Segment Details

Owned and Leased Hotels Segment

Worldwide revenues for owned and leased hotels increased 6.5% year over year to $555.0 million. Comparable owned and leased hotels revenues increased 6.3% on a year-over-year basis. Worldwide RevPAR for owned and leased hotels increased 7.6% (7.3% excluding the effect of currency).

The RevPar growth was driven by occupancy, which increased 130 basis points (bps) and ADR, which increased 5.8% (5.5% excluding the effect of currency). Comparable owned and leased hotels operating margins increased 190 bps year over year in the third quarter of 2014.

Management and Franchise Fees

Total fee revenue increased 22.1% to $94 million. Base management fees increased 9.8% to $45 million, mainly due to strong RevPAR growth and newly opened hotels. Incentive management fees increased 25% to $25 million in the third quarter of 2014 compared to the same period in 2013, primarily due to strong performance in the Americas and Southeast Asia, China, Australia, South Korea and Japan (ASPAC) segments. Franchise fees increased 38.4% to $18 million, primarily due to new hotels as well as the hotels recently transformed from managed to franchisee.

Americas Management and Franchising Segment

RevPAR for comparable full service hotels in Americas increased 8.4% (8.8% excluding the effect of currency). Occupancy increased 80 bps and ADR increased 7.3% (7.7% excluding the effect of currency).

RevPAR for comparable select-service hotels in Americas increased 9.7% in the reported quarter, driven by an 80 bps rise in occupancy and 8.6% improvement in ADR.

Revenues from management, franchise and other fees increased 23.1% from the prior-year period. Comparable owned and leased hotels operating margins for hotels in the Americas increased 240 bps year over year in the third quarter.

Southeast Asia, China, Australia, South Korea and Japan (ASPAC) Management and Franchising Segment

RevPAR for comparable ASPAC hotels increased 3.5% (4.1% excluding the effect of currency) in the third quarter of 2014, mainly driven by a 170 bps rise in occupancy and a 1% increase in ADR.

Revenues from management, franchise and other fees increased 29.4% year over year in the reported quarter. Comparable owned and leased hotels operating margins in ASPAC declined 10 bps.

Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management Segment

RevPAR for comparable EAME/SW Asia hotels increased 7.2% (7.8% excluding the effect of currency) in the third quarter of 2014. The RevPAR growth was driven by an occupancy increase of 390 bps and ADR increase of 0.7% (1.3% excluding the effect of currency).

Revenues from management and other fees decreased 5.3% year over year primarily because no incentive management fees were earned at any of the four managed hotels in France. Comparable owned and leased hotels operating margins for hotels in EAME/SW Asia segment declined 10 bps year over year in the third quarter.

Hotel Update

Hyatt opened 11 hotels in the third quarter of 2014. As of Sep 30, 2014, the company executed management or franchise contracts for roughly 250 hotels across all brands. The contracts represent entry into several new markets and expansion into markets, where the company has much lower footprint.

2014 Guidance

The company expects adjusted SG&A expense to be around $320 million, down from the previous guidance of $325 million. Management projects depreciation expenses to be around $360 million, slightly down from the earlier guidance of $370 million and capital expenditure to be approximately $275.0 million, down from $300.0 million.

The company expects the interest in the range of $70–$75 million, versus the prior guidance of $75 million. The company reiterated its previous guidance of opening over 40 hotels in 2014.

Our Take

Marriott is progressing well on the back of a strong expansion plan, significant international exposure, portfolio restructuring and increase in RevPAR across segments. The strong group booking trend worldwide is also a positive for the company. We are also encouraged by the fact that the company is recycling its asset base, which involves selling properties and continuing to manage them under long-term contracts. This will strengthen the balance sheet and enable it to operate in a capital efficient manner.

However, we remain concerned about the lingering political uncertainty in Europe, Latin America and some parts of Africa and an economic slowdown in the emerging markets, which are expected to weigh on the company's growth.

Hyatt presently has a Zacks Rank #3 (Hold). Investors interested in the hotel industry may consider stocks like Choice Hotels International Inc. (CHH), Intercontinental Hotels Group plc (IHG) and Marriott International, Inc. (MAR). All these stocks carry a Zacks Rank #2 (Buy).