Hyatt Hotels Takes an Earnings Hit Even as Sales Metrics Improve

Image: Hyatt.

Travel has always been a lucrative business, and hotel giant Hyatt Hotels has capitalized on the global surge in travel activity that growth in areas around the planet has spurred over the years. More recently, though, Hyatt has had to deal with some negative factors, especially the impact of a strengthening U.S. dollar on its international operations. Coming into Tuesday morning's first-quarter financial report, Hyatt investors had wanted to see sizable earnings growth despite falling sales, but the hotel chain couldn't deliver on their expectations. Let's look more closely at Hyatt Hotels and what its latest results tell us about the current state of the global travel market.

Why Hyatt earnings fellHyatt Hotels wasn't able to give investors the unequivocally positive results they would have preferred. Total revenue fell around 2% to $1.05 billion, which was actually better than the roughly 4% drop in sales that investors had expected to see. Yet after taking into account one-time items like gains on asset sales, Hyatt's adjusted earnings came in at $0.11 per share, down from $0.13 in the year-ago quarter and more than 40% below the consensus estimates for the company. As we saw last quarter, a sizable drop in share count over the past year helped keep the per-share declines from being even more dramatic. Overall, comparable hotel revenue per available room, or RevPAR, picked up 3.8% across the Hyatt system.

A closer look at Hyatt's different businesses yields some interesting viewpoints. Revenue among Hyatt's owned and leased hotels fell 7% during the quarter, leading to a 4% drop in adjusted pre-tax operating earnings. RevPAR comps gained 3.8%, with occupancy rising by 1.5 percentage points and average daily rates gaining 1.7%. Management and franchise fee revenue, on the other hand, soared 18%, with incentive-based fees making up the majority of the gains for the segment. Strength in the Americas offset flat performance in Southeast Asia and declines in the Europe, Africa, Middle East, and Southwest Asian business.

Still, Hyatt is aiming to grow. The company added nine new hotels in the first quarter, including three in the U.S. and others scattered from China and Dubai to India and Istanbul. With expectations to open roughly 50 hotel locations in 2015, Hyatt got itself off to a reasonable start to the year.

Image: Hyatt.

CEO Mark Hoplamazian was generally happy with Hyatt's performance, stressing the strength of the U.S. market. "We saw robust performance in our largest market," Hoplamazian said, "with the majority of both increases [in RevPAR] coming from average daily rate." In addition, the company is working to differentiate itself from its competition through offerings such as free Wi-Fi access and other digital initiatives.

What's next for Hyatt?Hyatt continues to be optimistic about its future. Hoplamazian once again pointed to the launch of the Hyatt Centric brand, with its first hotel opening in Chicago in April. The company expects the U.S. will continue to outperform the rest of the world, but Hyatt also believes its brand still carries weight even in areas that have seen less economic growth in the recent past.

As we saw last quarter, Hyatt has also put its money where its mouth is when it comes to investing in its stock. The company continued its buyback operations with purchases of nearly 3.2 million shares, spending $187 million and paying an average of just less than $59 per share. Even with those purchases, Hyatt had $210 million left in its authorized repurchase program as of May 1.

The biggest question facing Hyatt is whether economic growth will return to some of the areas it has concentrated on the most. Among emerging markets, India and China are obviously important. Europe has been a mixed bag lately, but anticipated jumps in leisure travel could end up being a positive even if levels of business activity remain muted due to near-recessionary conditions throughout much of the Eurozone.

Hyatt's results didn't inspire much confidence among shareholders, with the stock quickly dropping to losses of between 1%-2% after the regular trading session opened following the announcement. Nevertheless, even if Hyatt goes through a temporary rough patch, its long-term future looks solid as long as its target areas perform up to expectations.

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