Hyatt Hotels (H 0.49%) investors have received good news on several fronts in recent quarters. Revenue growth, for one, has been speeding up thanks to rising traveler demand. Those operating gains have been supplemented by surging cash returns as Hyatt shifts its business toward a more asset-light model.
The hotel chain this week revealed that both of those positive trends accelerated into 2018, which led to a boost in management's outlook for sales growth and direct cash returns.
Image source: Getty Images.
More on that forecast in a moment. First, here's how the latest headline numbers compare to the prior-year period:
|
Metric |
Q1 2018 |
Q1 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$1.11 billion |
$1.13 billion |
(2%) |
|
Net income |
$411 million |
$55 million |
644% |
|
Earnings per share |
$3.47 |
$0.43 |
707% |
Data source: Hyatt's financial filings.
What happened this quarter?
Hotel room revenue growth accelerated to the fastest pace in more than a year thanks to a mix of increased demand and rising prices. Hyatt combined that success with aggressive portfolio growth to put the company ahead of its 2018 operating targets.
Key highlights of the quarter include:
- Revenue per average room night (RevPAR) increased 4.3%, which is a strong start to 2018 given that management had predicted RevPAR gains of between 1% and 3% for the full year. The U.S. segment expanded at a 2.7% rate while many international markets, including China, grew 7%.
- Hyatt added nine hotels, or about 1,900 new rooms, to its portfolio during the quarter. Compared to a year ago, the base of rooms increased 7.2%.
- Average daily rates ticked higher across its portfolio of owned and managed hotels and occupancy rates improved slightly.
- Management and franchise fees spiked 16%.
- Net income soared thanks to the $1 billion sale of three properties during the period. Adjusted earnings, meanwhile, declined slightly as Hyatt took charges related to the disposition of these assets. Overall, adjusted profit margin held steady at 31% of sales.
What management had to say
Executives stressed the company's healthy operating trends in conjunction with their progress at raising cash by reducing Hyatt's asset base. "We had a strong start to the year," CEO Mark Hoplamazian said in a press release, "highlighted by better-than-expected lodging fundamentals and a $1 billion sale of three hotel properties."
Management sees these gains continuing for the rest of the year. "We remain cautiously optimistic for the balance of 2018 based on our underlying business trends and encouraging group booking patterns," Hoplamazian said. "We expect growth in both RevPAR and hotel rooms to sustain upward momentum in our management and franchise fees as we evolve to an asset-lighter business model."
Looking forward
Hyatt updated several of its 2018 financial targets to reflect the faster operating growth and changes to its accounting methods. RevPAR is now expected to rise by between 2% and 3.5% rather than the range management issued in February of between 1% and 3%. Hyatt also believes its portfolio of rooms will expand by between 6.5% and 7%, or a bit faster than the prior 6% to 6.5% target.
New accounting rules around asset sales will reduce adjusted earnings as compared to management's earlier forecast. However, this shift won't change the fact that Hyatt's cash position is improving dramatically. Thus, executives lifted their targets for direct shareholder returns and now plan to spend at least $700 million this year (up from $500 million) on stock buybacks and on the hotel chain's recently instituted dividend.
