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Hyatt's Earnings Reveal Its Plan to Boost Growth

By Asit Sharma – Feb 20, 2020 at 2:35PM

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The hotel brand franchisor has an antidote for disappointing unit revenue.

Luxury hospitality giant Hyatt (H -2.80%) reported fourth-quarter 2019 results on Wednesday after the closing bell. The franchisor's financial scorecard reflected a double-digit advance on the top line, and a leap in net income due to the sale of one of its larger international properties. Management also outlined its strategy to bolster growth despite a lukewarm macroeconomic environment. Let's get to the crux of the last three months of operations below, bearing in mind that all comparable numbers refer to those of the prior-year quarter.

Hyatt's fourth quarter: The essential metrics

Metric Q4 2019 Q4 2018 Change
Revenue $1.27 billion $1.14 billion 11.4%
Net income $321 million $41 million N/A
Diluted earnings per share $3.08 $0.40 N/A

Data source: Hyatt. N/A=Not applicable; periods not comparable due to a one-time property sale gain (discussed below).

Highlights from the quarter

  • Hyatt continued to struggle with soft revenue per available room, or RevPAR. Comparable systemwide RevPAR declined by 0.5%, which the company attributed to political unrest in Hong Kong and the timing of the Jewish holidays. For the full year, RevPAR increased only 0.7%, in keeping with a larger trend within the hotel industry. 
  • Conversely, the company's management operations and franchising income exhibited healthy growth, rising 11.8% to $161 million, due to new properties in the system that came on line during the period.
  • Hyatt achieved total room growth of 7.4%, which, along with the higher fee revenue, absorbed the dip in RevPAR and pushed the company's total revenue advance into the double digits. At quarter-end, the organization counted 223,000 rooms, or 913 hotels, in its system.
  • The wide difference between earnings in comparable quarters (as seen in the table above) is due to a $349 million gain on sale during the current period, as Hyatt sold the entity that owns the Grand Hyatt Seoul and adjoining real estate. On a more comparable basis, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 5.3% to $191 million. 
  • The company increased its quarterly dividend by 5.3% to $0.20 per share. The payout now yields roughly 1% on an annualized basis.
A young man checks into a modern hotel in the lobby.

Image source: Getty Images.

Management's comments and the 2020 outlook

In Hyatt's earnings release, CEO Mark Hoplamazian noted that the hospitality giant achieved room growth of 7.4% in 2019 as it opened a record 90 new hotels across its system. He also praised the company's late 2018 acquisition of hotel management company Two Roads Hospitality. The purchase has boosted management fee revenue while spurring developer interest in Two Roads' portfolio of upscale, lifestyle hotel brands.

As for development in general, Hoplamazian stated the following: "We believe our pipeline supports sustainable growth over time, and in 2019, our pipeline expanded by over 13% to approximately 101,000 hotel rooms, equivalent to 45% of our global rooms portfolio open today." Room development and indeed the active expansion of room inventory backlog, coupled with higher management and franchising fees, has become Hyatt's answer to an environment in which both soft occupancy rates and competitive room pricing are compressing RevPAR.

Hyatt's pipeline growth and its fast rate of new room completion play a role in the company's 2020 outlook. Despite a tepid RevPAR growth forecast of negative 0.5% to 1.5% in 2020, Hyatt intends to add net new rooms at a growth rate of 6.5% to 7%. 

Thus, the organization anticipates that adjusted EBITDA will land between $760 million and $780 million this year, which will represent a modest improvement of 2% over the $754 million in adjusted EBITDA it generated in 2019.

Notably, management of the consumer discretionary stock cautioned investors that Hyatt's outlook doesn't incorporate prospective impacts from the coronavirus outbreak. The company stated that the effect of COVID-19 on operations can't be "reasonably" quantified at this time. Given a clear path to revenue growth, investors seemed fine with the potential for a coronavirus-related outlook adjustment later this year: Hyatt shares were up by a solid 5% at midday in the Thursday trading session.

Asit Sharma has no position in any of the stocks mentioned. The Motley Fool recommends Hyatt Hotels. The Motley Fool has a disclosure policy.

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