Hotel company Hyatt Hotels (NYSE:H) has a world-renowned reputation for luxury and quality at its properties, which are scattered across the globe. With the recent boom in travel, it's natural for investors to assume that Hyatt would benefit from greater demand. Yet coming into Wednesday morning's fourth-quarter financial report, many Hyatt shareholders worried that the company could see a dramatic drop in its earnings compared to year-ago figures.
Fortunately for them, Hyatt's bottom line was a lot stronger than they had anticipated, and with continued improvements in the U.S. economy, the hotel company sees a lot of good things happening as it looks forward to the rest of 2015. Let's take a closer look at what Hyatt Hotels had to say about the fourth quarter, and where the hotel industry is right now.
Hyatt makes more from less
On the surface, Hyatt Hotels had a mixed report. Total revenue dropped 1%, to $1.08 billion, which was quite a bit weaker than the 4% growth that those following the stock had expected to see. On the earnings front, though, Hyatt did far better than expected, with adjusted earnings per share of $0.31 beating consensus estimates by $0.09 per share. Adjusted net income actually fell 8% from the year-ago quarter; but a reduction in share counts of about 5.6 million shares limited the earnings-per-share damage to a single penny compared to the previous year. Comparable-hotel revenue per available room, or RevPAR, rose 3.1% systemwide.
Looking at Hyatt's various segments shows some of the economic crosswinds in the global-hotel industry. In Hyatt's owned-and-leased hotel segment, revenue per available room climbed 1.9% on gains in both occupancy rates and average-daily revenue. Margins in the Americas showed gains, while properties outside the Americas suffered margin pressures.
Meanwhile, the managed and franchised hotel segment showed even greater disparities across regions, with RevPAR falling 3.2% in the Europe, Middle East, and Southwest Asia segment, but climbing in the Americas by 5% for full-service hotels and 7.3% for select-service hotels. Southeast Asia also showed some weakness.
Yet one of the biggest moves in the quarter came from the sale of 46 Hyatt hotels, including the Park Hyatt Washington and two large Canadian properties in Vancouver and Toronto. The sale involved Hyatt retaining management or franchise agreements for all 46 properties, which should further bolster the 7.4% growth in fee revenue related to management and franchise agreements that Hyatt had in the fourth quarter.
CEO Mark Hoplamazian was pleased with the gains in revenue per available room. He also noted the rapid pace of new hotel openings during 2014 -- Hyatt boasts 94 new hotel openings during the past two years. Hoplamazian was also proud of the financial moves that the hotel chain has made to improve its balance sheet and restructure its loan portfolio.
Can Hyatt climb higher?
Hyatt also has ambitious views toward 2015. Hoplamazian said that the company expects to open 50 new hotels this year, with the rollout of its new Hyatt Centric brand being one of its keys to building new excitement about Hyatt and its properties worldwide.
At the same time, though, Hyatt recognizes the different economic conditions throughout the world, anticipating further strength in the Americas but ongoing challenges in most international markets. Of Hyatt's expected $350 million in capital expenditures, about half will go toward new property investment, and Hyatt also expects further spending on acquisitions and other investments.
Moreover, Hyatt hasn't hesitated to invest in its own stock. The company bought back almost 3.65 million shares of its stock during the fourth quarter, spending $215 million, or an average of just more than $59 per share. That brought the total repurchases for 2014 to 7.7 million shares. After a new authorization of capital for further buybacks, Hyatt still has $375 million in its arsenal for future repurchases. Over the past 52 weeks, Hyatt Hotels shares have ranged from $64.52 to $50.70, according to S&P Capital IQ data.
Hyatt investors were somewhat pleased with the company's performance, as the stock posted modest gains of about 1% in the first hour of pre-market trading following the announcement. Even as the hotel industry gets more competitive, Hyatt appears to be in a strong position to ride the wave of improving economic conditions in the U.S. higher while preparing for the eventual turnaround in other parts of the globe.