2 Hotels to Love, 1 to Question, 1 to Avoid
Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the U.S. economy improves, both personal travelers and corporate travelers are returning to the road with a little more money to spend. The lodging industry has begun to see considerable improvement as a result, with many chains reporting pre-recession earnings.
A TripAdvisor survey revealed 42% of U.S. travelers are planning to increase travel spending this year, and 79% of U.S. hoteliers are optimistic about increased profit this year.
However, all hotels are not seeing these positive indicators reflected in their earnings. Here is one hotel to avoid, one to be cautious about, and two to hold on to for the long run.
A mint on the pillow won't make up for these earnings
Hyatt Hotels (NYSE: H) reported a 20% decrease in net income, a 2.5% decrease in revenue, and that earnings per share took a 55% nosedive in the first quarter of 2013. If everyone else is doing well, why isn’t Hyatt? Let’s take a closer look at the numbers.
Hyatt reported first-quarter 2013 net income was $8 million, down 20% from $10 million the year previous, and down 50% from the fourth quarter of 2012.
However, while net income decreased sharply, revenue actually increased 2%, reaching $975 million for the quarter in comparison to $958 million in the 2012 quarter. But revenue decreased 2.5% from $1 billion in the fourth quarter of 2012.
Comparable owned and leased hotel revenue per available room (RevPAR) increased 4.5%. Comparable system-wide RevPAR increased 2.4%. Comparable U.S. full-service hotel RevPAR increased 2.7% in the first quarter of 2013 compared to the first quarter of 2012.
Hyatt reported a 55% decrease in earnings per share from the previous quarter, while the competitors posted much higher returns - 21% at Starwood, 42% at Marriott, and 14% at Host Hotels. So what went wrong at Hyatt? Why isn’t this hotelier keeping up with the competition?
Blame it on the government
CEO Marc Hoplamazian attributed transient room revenue to a combination of demand and rate. He also cited factors such as major property renovations and cancelled business, specifically from the government. He said government-related group demand was particularly weak due to sequestration, down 50% in the quarter compared to 2012. However, the government only comprises 2% of business, according to a Hyatt employee union. If this were true, these issues would have been reflected in the earnings of the other hotel companies, and not just one chain.
In fact, Starwood Hotels (NYSE: HOT) CFO Vasant Prabhu said that although government business was down during the quarter, "it is less than 2% of our company-operated North American business. In many cases, we've been able to replace it with higher-rated corporate customers."
What Hoplamazian did not mention was that Hyatt is the only hotel company with a long-running labor dispute and system-wide boycott by its largest union. More than 3,000 individuals and organizations have signed on to the boycott and have removed their business. Whether the company admits it or not, this boycott appears to be taking its toll on profits.
Oceanfront property in Arizona
Another hotel company that does not appear to be enjoying the upturn in the economy is Wyndham Worldwide (NYSE: WYN), the world’s largest hotel franchisor with 7,260 hotels, including the Days Inn, Super 8, Wyndham, Ramada, and Howard Johnson chains. It is also the world's largest operator of time shares, with 180 resorts and 915,000 owners. However, in this case, size does not matter. While the company did not do as poorly as Hyatt, it also did not do as well as Starwood or Marriott either.
First-quarter sales were up 9% to $1.13 billion. Income before EBITDA was $73 million, down from $90 million the same quarter the year previous. Net income decreased to $27 million, down 16% from $32 million the year previous, and $80 million the immediate preceding quarter. Time shares produced 49% of Wyndham's revenue last year and 48% of earnings.
'Book Right and Save'
There are two hotel chains worth a look. Both Starwood and Marriott International (NYSE: MAR) have seen significant growth and success in recent quarters, and look to stay on track in the future.
Starwood is one of the world's largest hotel-operating companies, including subsidiaries Sheraton, Westin, and W hotels.
For the first quarter of 2013 Starwood Hotels reported adjusted EBITDA of $315 million. Net income was $213 million, up from $128 million the same quarter the year previous.The company attributed the 66% increase in earnings to a tax benefit and growth in North America.
Starwood executives said the company's first-quarter performance in North America was better than expected, with the daily RevPAR up 4.2% and occupancy up 1.3 percentage points to 68.6%. Systemwide RevPAR increased 5% in constant dollars. U.S. RevPAR increased 6.2%.
Starwood shows all the right signs for success and longevity, and is definitely a stock to keep your eye on.
But the hotel chain with the most impressive numbers is Marriott, the American success story. From the Marriott family soda shoppes to an international hotel chain, this company defines the American dream. And now the stock can bring the American dream to investors.
Marriott’s revenue for the first quarter of 2013 was $3.1 billion, an increase of 23% year-over-year. Net income rose 31% to $136 million.
North American system-wide comparable REVPAR rose 4.8%, and worldwide system-wide REVPAR rose 4.6%.
The company opened nearly 5,300 rooms during the quarter. The company operates 3,800 properties in 74 countries, with more than 650,000 rooms.
Marriott recently announced its decision to hike its quarterly dividend by 30% to 17 cents per share from 13 cents per share. Marriott has a consistent track record of paying dividends and the latest hike brings the forward annual dividend yield, as of May 10, to 1.55%.
The hotel industry feels the pinch of a fickle economy sooner than most industries. Positive growth for hotels is a good reflection of the collective American pocketbook. As always, invest for the long term, and look at the big picture. Will a company stand the test of time? Or will it wrinkle and blemish from within? Marriott and Starwood have proven their mettle, and would make great long-term contributions to your diverse portfolio.
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Erin McBride has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!