Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=209851
Story Retrieval Date: 12/4/2013 8:39:48 PM CST
While Sandy might put a dent in Hyatt's earnings next quarter, the Chicago-based hotel company showed improvement in the third quarter.
Sandy will dent Hyatt’s income next quarter
Hyatt's net income is showing a 64 percent increase in the third quarter from the same period a year ago.
The Park Hyatt New York, set to open in 2013, was one of the first casualties of Superstorm Sandy, which snapped a crane at the hotel’s One57 construction site Monday. Now dangling 90 stories above the street, the crane has become a favorite image of reporters covering the storm.
But executives at Hyatt Hotels Corp. say they won’t feel the full financial effects of the storm until the fourth quarter. Investors reacted to the bleak outlook by selling Hyatt shares. Its stock dropped more than 4 percent Wednesday.
The drop was somewhat surprising given the positive third-quarter results that Hyatt presented earlier in the day. The company posted a dramatic 64 percent increase in its third-quarter earnings, which were helped by acquisitions and renovations made in the third quarter last year. Hyatt posted a net income of $23 million, or 14 cents per diluted share, up from $14 million, or 8 cents per diluted share, in the year-ago period.
But the international hotel company still fell short of Wall Street’s expectations. Analysts surveyed by Bloomberg had been expecting Hyatt to earn 17.8 cents per diluted share.
Sales also increased 8.9 percent from the same quarter a year ago to $977 million from $897 million. Nikhil Bhalla, an analyst at FBR Capital Markets & Co. Inc., explained that while the company showed improvement, this quarter should have been much better. “It was all much softer than expected,” Bhalla said, “Expenses relative to revenues were not where they should be.”
In a conference call with analysts, Hyatt CEO Mark Hoplamazian stressed that next quarter will not likely be as strong. “We are seeing signs of more modest overall growth in 2012,” Hoplamazian said, blaming the timing of events such as the Presidential Election and Superstorm Sandy, which have hurt or are expected to hurt business travel towards the end of the year.
“In terms of the current quarter, Sandy is clearly causing disruptions,” he said. Hoplamazian explained that more than 25 full-service hotels experienced disruptions, power loss or damages. One Hyatt hotel is still closed in Manhattan and another in New Jersey remains partially closed. “It’s too early for us to make a reasonable estimate of the impact,” he said, but he acknowledged that group business and banqueting cancellations would have an impact on fourth-quarter results. He said that the company is considering waiving cancellation fees to regain those customers.
But analyst Bhalla had good news about Hyatt when it comes to the superstorm. He said the effects of Sandy will be industry-wide, but that Hyatt will take a smaller hit than two of its biggest competitors. Hyatt has far fewer hotels in New York and Washington D.C. than Starwood Hotels & Resorts Worldwide Inc. and Marriott International Inc. “Starwood and Marriott are definitely going to feel Sandy more.”
As for the crane fiasco, Hoplamazian explained that Hyatt is not actually involved in the construction of the hotel, but he is confident that the project’s team will have the situation under control. “There are clearly possible delays in the timing of the completion of the hotel, but it’s impossible for us to know right now,” he said.
In the first nine months, Hyatt’s net income increased 8.9 percent to $2.9 billion, or 44 cents per diluted share, from $2.7 billion, or 36 cents per diluted share, in the year-ago period.
Hyatt’s shares fell $1.56 Wednesday to close at $36.50.