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Mark Vickery

Hyatt Beats EPS By a Penny

H CHH

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Hyatt Hotels Corporation (H - Snapshot Report) reported third quarter 2012 adjusted earnings of 18 cents per share, beating the Zacks Consensus Estimate by a penny and year-ago earnings of 16 cents by 12.5%. On a reported basis, the company earned 14 cents per share compared with 8 cents in the year-ago quarter.

Revenue jumped 8.9% year over year to $977.0 million as revenue per available room (RevPAR) witnessed solid improvement across all segments. However, revenues missed the Zacks Consensus Estimate of $999.0 million.

Segment Details

Owned and Leased Hotels Segment

Worldwide revenue for owned and leased hotels increased 7.0% year over year to $503.0 million. Worldwide RevPAR for Hyatt branded same-store hotels increased 4.6% to $136.53 million. Occupancy increased 40 basis points (bps) to 78.4% and Average Daily Rate (ADR) climbed up 4.0% to $174.07 million.

North American Management and Franchising Segment

Revenue from management and franchise fees in North America increased 9.6% year over year to $57.0 million. Same-store North American full-service hotels experienced a 4.2% year over year increase in RevPAR to $127.43, while select-service hotels' RevPAR increased 6.0% to $79.93 million. Occupancy decreased 50 bps to 75.7% and increased 40 bps to 78.2% in full-service and select-service hotels, respectively. On the other hand, ADR surged 4.9% to $168.32 and 5.5% to $102.24, respectively.

International Management and Franchising Segment

Revenue from management and franchised fees were up 2.9% year over year to $35.0 million. Same-store international hotels RevPAR upped 0.8% year over year to $148.36 million. Occupancy hiked 20 bps to 65.0%, while ADR rose 40 bps to $228.11 million.

Hotel Update

Hyatt opened five new properties during the quarter. Of these, three were in the North American segment and two were in the International segment. Hyatt disposed one property during the quarter from its North American segment portfolio. At the end of the quarter, Hyatt’s pipeline included 496 hotels, comprising almost 135,992 rooms.

The company is focused on its strategy of expanding in new markets, of which around 75% is expected to be on the international front. As of September 30, 2012, Hyatt has signed management or franchise contracts for more than 175 hotels across all brands.

Liquidity

At quarter-end, Hyatt had cash and cash equivalents of $450.0 million (including investments in highly-rated money market funds and similar investments). Total debt was around $1.2 billion at the end of the quarter. Hyatt has around $1.4 billion available under its revolving credit facility.

Share Repurchases

During the quarter, Hyatt declared that its Board of Directors has received the authorization to repurchase the company's common share up to $200 million worth. The company repurchased 911,244 of common stock at an average price of $38.78 per share during the reported quarter.

2012 Outlook

Hyatt revised its adjusted SG&A expense, depreciation expense and interest expense guidance for 2012. The adjusted SG&A expense is now expected to be around $305.0 million, down from the previous guidance of $320.0 million. Management projects depreciation expenses to be around $355.0 million, slightly down from the earlier guidance of $360.0 million and capital expenditure to be approximately $340.0 million, down from $360.0 million.

The company reaffirmed the interest expense guidance and continues to expect it to be around $70.0 million. The company also reiterated its previous guidance of opening over 20 hotels in 2012.

Our Take

We remain bullish on the stock, given the company’s strong expansion plan, significant international exposure, portfolio restructuring and increase in RevPAR across segments. Hence, we expect analysts to revise their estimates upward in the coming days. Currently, the Zacks Consensus Estimate for 2012 and 2013 are pegged at 60 cents and 90 cents, respectively.

One of Hyatt’s competitors - Choice Hotels International Inc. (CHH - Snapshot Report) - reported third quarter 2012 earnings per share of 76 cents, substantially beating the Zacks consensus Estimate and year-ago earnings.

Hyatt currently carries a Zacks #3 Rank, implying a short-term ‘Hold’ rating. We also reiterate our long-term Neutral recommendation on the stock.

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