Hyatt Hotels' (H +1.80%) business performs at its best when it achieves robust growth in its franchise fees while logging higher sales at the hotels it owns and operates. Those gains form the foundation for a planned aggressive expansion of its hotel base. They also provide funds that the company can send right back to shareholders in the form of dividends and stock repurchases.
Hyatt's recent third-quarter earnings report contained positive news along each of those lines and kept the hotel chain right on track to meet management's 2018 outlook.
Here's how the headline results compared to the prior-year period:
|
Metric |
Q3 2018 |
Q3 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
1.07 billion |
1.07 billion |
N/A |
|
Net income |
$237 million |
$18 million |
1,217% |
|
EPS |
$2.09 |
$0.14 |
1,393% |
Data source: Hyatt's financial filings.
What happened with Hyatt Hotels this quarter?
Core revenue growth slowed for the second straight quarter but remained solidly positive. Hyatt paired that gain with a quickly expanding base of rooms. At the same time, proceeds from real estate sales led to a sharp profit spike.
Image source: Getty Images.
Key highlights of the quarter include:
- Revenue per average room night (RevPAR) rose 2.8% compared to 4% last quarter and 4.3% at the start of fiscal 2018. Gains weren't quite as broad-based as they have been in recent periods, with occupancy rates dipping slightly in the U.S. geography. However, Hyatt managed improved occupancy rates and rising daily spending across its global portfolio.
- Management fees jumped 8% -- or 9% after accounting for currency exchange moves -- to $133 million. This boost was driven by a growing franchise base and higher guest spending on rooms and services.
- Hyatt's base of available rooms expanded 7.6% after the company added 12 hotels totaling 2,608 rooms to its global footprint.
- A few large real estate sales pushed net income sharply higher, but adjusted earnings held steady at $175 million. Adjusted profit margin, meanwhile, improved to 30% of sales from 27% last year.
- Hyatt spent $66 million repurchasing its stock to bring year-to-date spending to $674 million.
What management had to say
Hyatt executives were happy with the broadly positive results. "We reported another quarter of solid growth," CEO Mark Hoplamazian said in a press release, "led by a 9% increase in management and franchise fees and 5% RevPAR growth at our owned and leased hotels." The operating success is helping fund higher investor returns, too, management explained. "We are continuing to execute our long-term growth strategy while returning meaningful capital to shareholders, enabled in part by our sell-down of real estate," Hoplamazian said.
Looking forward
Management didn't raise its 2018 growth expectations like it did in each of the prior two quarters. That means RevPAR is still expected to land at roughly 3.5% to mark a modest improvement over last year's 3.3%. The chain still expects to open about 60 new hotels for the year, equating to room growth of between 6.5% and 7%.
Meanwhile, thanks to the combination of several favorable financial trends, including reduced tax expenses and higher real estate sales, Hyatt is ready to speed up its cash return policy. To that end, management now plans to deliver $1 billion to shareholders this year through stock repurchases and its recently initiated dividend payment. That target stood at $800 million last quarter and $700 million in the fiscal first quarter but has shot higher as Hyatt's finances strengthened through the year.
