Hyatt Hotels Corporation Boosts Profits With Help From Its High-End Properties

The spa room at the Grand Hyatt Lijiang Hotel in China. Image source: Hyatt.

Heading into this week's third-quarter earnings report, investors were unsure whether Hyatt Hotels (H -0.97%) would lower its growth outlook for a second time this year due to weakening industry trends in international markets. The stock had stayed flat since the last quarterly report in early August, reflecting those growth worries.

The hotel chain announced a healthy sales expansion pace on Thursday, though, and executives reiterated the (slightly lower) growth rate that they issued three months ago.

Here's how the latest headline numbers compare against the prior-year period:

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

What happened this quarter?

Hyatt's growth pace held steady at a 2.5% improvement in revenue per available room (RevPAR) as the chain continued to aggressively expand its industry presence by adding thousands of rooms to its hospitality footprint.

Key highlights of the quarter include: 

• Growth was strongest in the U.S. market, where RevPAR rose by 3.8%. Hyatt's more expensive full-service hotel category improved by 3.4%, while its lower-tier select service segment rose at a 4.6% pace.
• International markets were negative overall, with RevPAR falling slightly in the China geography and by a hefty 8% in the Europe, Africa, and Middle East division.
• Management and franchise fees rose 7%, to $110 million.
• Hyatt added eight new hotels to its portfolio, including a 262-room property in Anaheim, California, and a 203-room hotel in Portland, Oregon.
• The company's hotel footprint rose by 9% and its available-room count expanded by 7%, to over 172,000.
• Management spent $137 million repurchasing shares at an average price of $52.54 per share.

What management had to say

"We reported another quarter of solid growth, propelled by the strength of our brands," CEO Mark Hoplamazian said. "Once again, we saw relative strength in the Americas region, driven primarily by group business."

"Looking ahead, we believe we are well positioned to deliver against our growth strategy," Hoplamazian continued. "Given our executed contract base of approximately 61,000 rooms, or more than 35% of our current room base, we believe our portfolio of high-quality brands is poised for meaningful and sustainable growth," executives said. "Our outlook for the overall business for the remainder of 2016 is positive." 

Looking forward

Reflecting that encouraging outlook, management reiterated the 2% to 3% full-year RevPAR growth pace that it forecast last quarter, which was just below the 4% gains it had been expecting before conditions worsened in a few international markets. Executives aim to hit steady gains through a focus on the higher-end hotel segments and the large group events that are seeing the most demand right now.

Meanwhile, the company's aggressive long-term growth goals appear achievable. Hyatt is on pace to open as many as 60 new locations this year and has contracts in place for almost 300 to be developed over the next few years. Many of these hotels represent entries into entirely new countries, while some just expand in areas where Hyatt believes it is underrepresented. In either case, investors can expect the hotel chain to supplement its modest revenue growth at existing locations with a fast-expanding base.