Hyatt Hotels Corporation Boosts Profits, but Lowers Its Outlook

Hyatt Hotels (H -0.61%) on Tuesday announced quarterly earnings results that included plenty of good news for shareholders, such as an uptick in average nightly revenue (RevPAR), higher profits, and improved market share. However, weakening trends in a few key international markets led management to dial back its full-year growth outlook.

Here's how the top- and bottom-line figures compare to the prior-year period: 

YOY = year over year. Data source: Hyatt's financial filings.

What happened this quarter?

Image source: Getty Images.

Hyatt's 2.3% RevPAR improvement marked its third quarter of accelerating gains by that metric. It modestly trailed rival Marriott (MAR -2.92%), though, which last week posted 2.9% RevPAR growth. Hyatt's 67% spike in net income was affected by a $21 million loss from the sale of one of its properties. Stripping out that unusual loss left the company with even stronger profit growth: Adjusted earnings more than doubled to $87 million.

Other key highlights of the quarter include:

• Revenue in the owned and leased hotels segment rose 4% as strong demand in the North American market offset declines in outside geographies. Hyatt logged a 1.3-percentage-point uptick in occupancy (the same gain Marriott managed) as 80% of rooms were booked in the quarter.
• Average daily revenue rose 2% to $223.
• Hyatt added to its footprint with 8% growth in the hotel base (translating into 15 new hotels) and 6% growth in the number of available rooms.
• Fee revenue rose 3% to $115 million, a slight acceleration from the prior quarter's 2% uptick.
• Growth turned negative for several of Hyatt's international markets, led by an 11% RevPAR decline in the China segment.

What management had to say

CEO Mark Hoplamazian said the hotel chain is facing some "near-term challenges" that have convinced management to pull back its 2016 growth forecast. These struggles aren't unique to Hyatt, though, and in fact, the company is growing at a faster rate than the industry, he said. "In the second quarter, we gained market share systemwide, with particular strength in the Americas."

"We reported solid second quarter results while continuing to execute our long-term growth strategy," Hoplamazian said while commenting on the financial results. "Adjusted EBITDA grew 9.7% in the quarter, excluding the impact of foreign currency translation and transactions."

Looking forward

Hoplamazian and his executive team now see RevPAR growing by about 3% this year, compared to the 4% gains they projected three months ago. Investors weren't shocked by the downgrade since rival Marriott lowered its own outlook by the same rate last week because of generally slower economic growth around the world.

Hyatt can't do anything about industrywide slowdowns, which is why management is focused on aggressively expanding its footprint to meet Hyatt's long-term goal of becoming the most preferred brand in hospitality.

To that end, the company added over 2,800 rooms to its base this quarter and projects launching 60 new hotel properties this year. Meanwhile, the slower growth pace isn't likely to knock Hyatt off of its solid earnings growth pace since management is now forecasting lower expenses and reduced capital expenditures than it originally projected three months ago.