Next week, there will be a flurry of reports coming in for the hotel industry as we head toward the peak of this earnings season. These reports would include the first-quarter results of some of the bellwethers of the U.S. hotel industry.
With global markets casting a gloom, earnings growth so far has been negative for as many as 7 of the 16 Zacks sectors. (Read: Making Sense of the Q1 Earnings Reports).
Despite the turmoil, the U.S. hotel industry started 2016 on a bright note. Occupancy increased over the past few months driven by the rise in business and leisure travel in the wake of a gradually improving economy and lower energy prices. Favorable supply and demand balances, strong investor appetite, thanks to higher transaction volumes, and solid lodging fundamentals spread cheer across the industry.
On the flipside, increased competition and shifting consumer trends have been pressurizing profits in the industry in the recent past. As a result, hoteliers are firing on all cylinders to boost profits while capitalizing on the growing tourism numbers. Higher costs incurred by leading hoteliers for renovation as well as digital and marketing initiatives to boost traffic are, however, taking a toll on profits. Further, online travel agents are limiting the pricing power of these brands. Therefore, hotels are struggling significantly to increase average daily rates.
Also, sluggish conditions in important emerging economies like Brazil and China continue to pose headwinds. Going forward, declining crude and commodity prices, rising inflation, and devaluation of currencies in these markets are expected to hurt the top line.
This week will see earnings releases from major hoteliers like Wyndham Worldwide Corporation and Marriott International, Inc. (MAR - Free Report) . Let’s take a look at how these players are placed ahead of their scheduled announcements.
Wyndham is set to report first-quarter 2016 results on Apr 26, before the opening bell. The company’s earnings have surpassed earnings estimates in three of the trailing four quarters, with an average surprise of 4.40%. Wyndham’s quarterly revenues have also topped the consensus mark over the same period. This is mainly attributable to the company’s efforts on boosting occupancy. The company deploys a variety of marketing strategies, including online advertising, social media marketing, and sponsorships and highly targeted direct marketing for this purpose. It is also looking to drive growth on the back of its revised loyalty program. Additionally, Wyndham derives a substantial chunk of its revenues from the vacation ownership or timeshare business. This fee-for-service-based business model is expected to continue driving earnings in the first quarter. Wyndham has a Zacks Rank #3 and an Earnings ESP of 0.00%. (Read: Can Solid Revenues Drive Wyndham's Q1 Earnings?)
Marriott is set to report first-quarter 2016 results on Apr 27, after the market closes. The company has surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average positive surprise of 3.06%. However, for the first quarter of 2016, this Zacks Rank #3 (Hold) company has an Earnings ESP of 0.00%, which makes it difficult to conclusively predict an earnings beat. Given the property locations and strong brand recognition, Marriott is poised to benefit from growing demand backed by its stepped-up business and rising leisure traveling in the major North American markets. On the other hand, a slowdown in the Chinese economy and persistent political disruption in certain pockets of the world might hurt its performance. Marriott also has to combat the negative impact of foreign currency headwinds. (Read: Marriott Q1 Earnings: Can the Stock Pull a Surprise?)
Despite the slowdown in the emerging markets, companies in the hotel industry are reporting better-than-expected numbers in the past quarters, thanks to low expectations. As such, not all hope is lost for these hotel stocks as the market has already adjusted the prices (and their expectations) for such an uncertain environment. This leaves ample scope for a possible earnings beat.
Stay tuned! Check later on our full write-up on earnings releases of these stocks.
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