Hyatt Posts Lower Earnings Amid Currency Headwinds But Outlook Positive
Hyatt Hotels (NYSE:H) recently reported its Q1 earnings, which came in at $0.15 as compared to $0.36 per share in the prior year quarter. Revenue and EBITDA declined 2% to $1.05 billion and $169 million, respectively. The weakness was partly due to unfavorable foreign exchange effects. The average daily rate (ADR) for its owned and leased hotels grew 1.7% to $218 and occupancy grew 150 basis points to 75.2%. Management and franchise fees also increased by 10% during the quarter, primarily led by continued growth in America region. [1] We continue to believe that the company’s hotel operations will see steady growth in the near term led by a better macroeconomic environment, which will boost business travel and group bookings.
We currently estimate revenues of about $4.60 billion for Hyatt Hotels in 2015, with EPS of $1.20, which is in line with the market consensus of $1.20, compiled by Thomson Reuters. We currently have a $68 price estimate for Hyatt Hotels, which we will soon update to incorporate the first quarter earnings results.
See our complete analysis for Hyatt Hotels
Currency Headwinds Weigh Over Owned And Leased Hotels
We estimate that owned and leased hotels account for approximately 30% of Hyatt’s value. Revenues are generated from room sales as well as non-room revenues such as food & beverage and other ancillary services. Room revenues are primarily driven by the ADR and occupancy levels at the hotel. Both ADR and occupancy have been on an uptrend over the past few years. ADR grew from $157 to $220 between 2009 and 2014 while occupancy levels grew 66% to 76% during the same period. Looking at Q1 2015, segment revenues declined 7% to $509 million while EBITDA was stable at $124 million. Lower revenues can partly be attributed to unfavorable foreign exchange rates. However, the company continued to see growth in its group bookings, up 7% for 2015. Transient bookings are also seeing growth, with a 7% jump in transient room revenues for the quarter. [2] A better macroeconomic environment is creating higher demand for hotels, especially on corporate bookings and conventions. Hotel operators such as Hyatt and Hilton are already seeing continued growth in rates for the owned properties over the past few quarters. We currently estimate ADR to be north of $230 and occupancy rate to be around 77% in 2015. This will translate into room revenues of $2.40 billion and an estimated EBITDA margin of 25% will translate into EBITDA of $590 million, representing 60% of the company-wide EBITDA.
Continued Growth In Management Fees
Hyatt manages and franchises third party owned hotels and charges fees for this service. The third party owned hotel business accounts for approximately 70% of Hyatt’s value, according to our estimates. The high value contribution can be attributed to high margins associated with managed and franchised hotels given that the hotel owners absorb the operating costs. The management and franchise fees grew 10% to $125 million (this does not include reimbursed costs) during the March quarter. We expect this uptrend to continue primarily driven by growth in the U.S. economy as well as in Europe and emerging economies, including China, Indonesia and India. This will spur demand and eventually translate into higher fees for Hyatt. The company’s strong set of brands and a wide portfolio of assets spread across the globe will further help it achieve higher occupancy levels at these properties. We currently estimate the management fees to be around $450 million for 2015 and an estimated EBITDA margin of 89% will translate into EBITDA of around $400 million, representing 40% of the company-wide EBITDA.
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- Hyatt Hotels’ SEC Filings [↩]
- Hyatt Hotels (H) Mark S. Hoplamazian on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, May 5, 2015 [↩]