Hyatt Hotels Raises Its Growth and Cash Return Targets (Again)

Hyatt Hotels' (H 0.14%) business has benefited from several positive trends lately, including strong global demand for rooms and increased spending by guests on hotel services like dining. These favorable trends are combining with attractive financial initiatives to push core profitability higher.

In its fiscal second-quarter results issued this week, Hyatt showed more progress along each of these growth avenues, leading to another upgrade in the hotel chain's 2018 outlook.

More on that brightening forecast in a moment. First, here's how the latest headline numbers compare to the prior-year period:

Data source: Hyatt's financial filings.

What happened this quarter?

Growth in revenue per available room (RevPAR) ticked down slightly from last quarter's stellar result, but still beat management's expectations. The company paired that performance with strong results on core metrics, including franchise fee growth, operating margin, and hotel portfolio expansion.

Image source: Getty Images.

Key highlights of the quarter include:

• RevPAR rose 4.0%, compared to 4.3% in the prior quarter. That growth rate outpaced management's full-year target and included gains in occupancy and in average daily spending by hotel guests.
• The portfolio of available rooms expanded by 4,686, or 7.4%, which was slightly faster growth than executives have targeted for the full year.
• Franchise and management fees rose 9.6% to $142 million.
• Operating margin for owned and leased hotels improved to 27.2% from 25.6%.
• Adjusted earnings, which strip out the volatile impact of real estate sales, improved to $84 million ($0.72 per share) from $65 million ($0.51 per share) a year ago.

What management had to say

Hyatt's management was pleased to see improvements in both RevPAR and franchising fees during the quarter. CEO Mark Hoplamazian said in a press release, "Strong second-quarter results demonstrate continued upward momentum in our management and franchising business, underpinned by 4% comparable system-wide RevPAR growth and 7.4% net rooms growth."

The growth in franchise fees, Hoplamazian said, is "fueling the evolution of our earnings to be increasingly fee-driven" rather than powered solely through the direct management of hotels.

"Disciplined execution of our long-term growth strategy continues to drive strong operating results and new hotel openings, sustaining solid earnings growth and meaningful shareholder capital returns as we pivot to an asset-lighter business model," he said.

Looking forward

Healthy booking trends led to management's second straight 2018 guidance increase. Executives now see RevPAR rising by between 3% and 4%, compared to their initial forecast of 1% to 3% and their updated goal from early May of 2% to 3.5%. The company still expects to open about 60 new hotels during the year, equating to net room gains of between 6.5% and 7%.

Additionally, rising profitability should lift earnings at a faster rate than originally planned, and Hyatt intends to direct a piece of that extra windfall right back to shareholders. Management now aims to spend as much as $800 million on stock repurchases and dividends this year, up from its May prediction of $700 million (and the $500 million initial target). "... [W]e expect a solid finish to 2018," Hoplamazian said, "and have raised our guidance accordingly."