At its last quarterly check in, Hyatt Hotels (NYSE: H) announced surprisingly strong sales growth but left its full-year outlook unchanged. This week, the hotel chain again beat expectations. This time, though, management lifted its 2017 operating targets in response to the gains.
More on that rising forecast in a moment. First, here's how the latest headline numbers compare to the prior year period:
What happened this quarter?
Hyatt's growth pace declined slightly, but the company's 3% expansion was still above management's full-year forecast. Profits shot higher thanks to rising management and franchise fees in addition to gains from property sales.
Key highlights of the quarter include:
- Revenue per average room night (RevPAR) rose 2.9% despite the negative impact of a timing shift that pushed the Easter holiday into the previous quarter. Over the first half of the year, RevPAR is up 4%, compared to 2.5% for the full 2016 fiscal year.
- Adjusted earnings ticked up by less than 1% to $229 million as net income soared higher by 30%.
- Management and franchise fees jumped 12% to $130 million.
- Hyatt increased its hotel base by 22 locations or 10%, and its inventory of rooms by 7%, or 3,366.
- The company sold two large properties, the 815-room Regency Grand Cypress and the 393-room Regency Louisville, as part of its asset recycling program. It raised $267 million in the transactions.
What management had to say
Management said the hotel sales are helping improve Hyatt's finances even as earnings expand. "We have made good progress toward our goal of being a net seller of assets in 2017 while sustaining solid earnings growth and returning meaningful capital to our shareholders," said CEO Mark Hoplamazian in a press release.
Executives explained that the latest operating metrics demonstrated improving sales and profit trends. "Our second-quarter results reflect the strength of the Hyatt brands, demonstrating continued, upward momentum in our business," Hoplamazian said. Management highlighted the company's quickly rising hotel and room base as well. "We continue to expand at a rapid pace, with hotel rooms up 7% versus prior year and a pipeline of signed deals representing 37% of our current rooms inventory."
The property deals keep Hyatt on pace to add roughly 60 hotels to its portfolio this year. Its longer-term plans include contracts on 300 hotel launches, including several in entirely new markets.
Meanwhile, the company now sees sales and profits rising at a faster pace than executives had targeted at the start of the fiscal year 2017. RevPAR growth will be between 1% and 3%, compared to the prior forecast of between 0% and 2%. The new range opens up the possibility of accelerated full-year growth compared to 2016's 2.5% uptick.
The updated target for adjusted earnings ranges from $795 million to $815 million, compared to the $769 million to $804 million outlook executives had previously issued. At the midpoint of guidance, that implies an almost 3% improvement over last year's result. Thus, both its top and bottom line figures describe steady growth for a slight improvement over the flat outlook that Hyatt had held as recently as early May.
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