It has been about a month since the last earnings report for Hyatt Hotels (H - Free Report) . Shares have lost about 0.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Hyatt Hotels due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Hyatt’s Earnings Beat, Revenues Miss Estimates in Q2
Hyatt(H - Free Report) posted mixed results in the second quarter of 2018, wherein earnings surpassed the Zacks Consensus Estimate while revenues lagged the same.
Adjusted earnings of 72 cents per share beat the consensus estimate of 48 cents by 50%. Earnings grew 41.2% year over year on higher EBITDA margins.
Total revenues of $1.13 billion declined 1.4% from the prior-year quarter, due to lower contribution from owned and leased hotels. Revenues also missed the consensus estimate of $1.14 billion by nearly 1%.
In the reported quarter, comparable system-wide revenues per available room(RevPAR) increased 4%, taking into account an increase of 4.1% at comparable owned and leased hotels. Excluding the effect of Easter holiday timings,both comparable system-wide RevPAR, and comparable owned and leased RevPAR moved up 3.7%.
Comparable U.S. hotel RevPAR increased 3.4%. Full-service hotel RevPAR rose 4% and that of select service hotel grew 2.1%. Excluding the impact of Easter holiday timing, comparable U.S. hotel RevPAR increased 3%, with full and select service hotel RevPAR increasing 3.4% and 2.1%, respectively.
In the second quarter, net income decreased 24.6% to $77 million. Adjusted EBITDA declined 2.7% to $218 million (down 3.1% in constant currency). Adjusted EBITDA margin, however, increased 280 basis points (bps) to 34.2%.
Comparable owned and leased hotels operating margin increased 160 basis points to 27.2%.
Hyatt manages business through four reportable segments: Owned and Leased Hotels; Americas Management and Franchising; Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) Management, and Franchising; and Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management, and Franchising.
Revenues from Owned and Leased Hotels were $478 million, down 15.8% (16.4% in a constant currency) from the year-ago figure.
In constant currency, comparable owned and leased hotels RevPAR increased 4.1%. ADR increased 2.8% and occupancy rose 100 bps from a year ago.
Adjusted EBITDA decreased 12.1% to $120 million. At a constant currency, the same declined 12.2% due to transaction activities.
Revenues at Americas Management and Franchising were $108 million, reflecting an increase of 2.6% from the year-ago figure and 2.8% rise at a constant currency.
RevPARfor comparable Americas full-service hotels increased 4%. ADR climbed 3.1% at a constant currency and occupancy increased 70 bps from the year-ago quarter.
Meanwhile, RevPAR for comparable Americas select-service hotels rose 2.6%. Occupancy increased 40bps and ADR improved 2.2%.
Adjusted EBITDA increased 4.2% (up 4.3% in a constant currency) to $96 million.
Revenues at ASPAC Management and Franchising rose 11.7% year over year (up 7.8% in a constant currency) to $30 million.
RevPAR for comparable ASPAC full-service hotels increased 4.2%, driven by increased occupancy across regions, particularly greater China. Notably, occupancy rose 220 bps and ADR climbed 1.1% in the quarter under review.
Adjusted EBITDA increased 6.6% (up 1.8% at constant currency) to $18 million.
Revenues at EAME/SW Asia Management and Franchising increased 20.6% (19.8% in a constant currency) year over year to $19 million.
Comparable EAME/SW Asiafull-service hotels’ RevPAR moved up 6.5%, driven by growth in Russia, France and Switzerland. ADR increased 2.9% and occupancy rose 230 bps.
Adjusted EBITDA increased 50.3% (up 48.4% at a constant currency) to $11 million.
As of Jun 30, 2018, Hyatt reported cash and cash equivalents of $628 million, including investments in highly-rated money market funds and similar investments, up from $503 million at the end of 2017.
The total debt was $1.4 billion as of Jun 30, 2018, nearly unchanged from that of 2017 end.
During the second quarter of 2018, the company repurchased $513 million shares of its common stock. Hyatt’s board of directors has declared a cash dividend of 15 cents per share for the third quarter of 2018. The dividend is payable on Sep 20, 2018, to Class An and Class B shareholders of record as of Sep 6, 2018.
The company expects net income of $508-550 million compared with the previously guided $495-$553 million. Capital expenditure is expected to be approximately $375 million for 2018, same as the previous guidance. Adjusted EBITDA is expected to be $775-$785 million, higher than the previous guidance of $765-$785 million.
Comparable system-wide RevPAR is anticipated to increase 3-4% year over year. Earlier, the company expected 2-3.5% growth for the same.
The company continues to expect unit growth, on a net rooms basis, by roughly 6.5-7% (compared with the prior guidance of 6-6.5%), reflecting 60 new hotel openings. It now expects to return roughly $800 million to its shareholders through a combination of cash dividends on its common stock and share repurchases.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -22.08% due to these changes.
At this time, Hyatt Hotels has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks style scores indicate that the company's stock is suitable for value and momentum investors.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Hyatt Hotels has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.