This week, we expect to see earnings releases from a number of hoteliers as we move further ahead into the earnings season. Among these are some of the major players in the U.S. hotel industry.
Despite the turmoil in international markets, the U.S. hotel industry started 2016 on a bright note. Occupancy increased over the past few months driven by a rise in both 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.
Despite the positives, 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 pistons to ensure optimal profits while capitalizing on the growing tourism numbers. Higher costs incurred by leading hoteliers for renovation as well as technological and marketing initiatives to boost traffic are, however, taking a toll on profits. Further, online travel agents are limiting the pricing power. 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 Starwood Hotels & Resorts Worldwide Inc. HOT and Hyatt Hotels Corporation H . Let's take a look at how these companies are placed ahead of their scheduled announcements.
Starwood is set to report first-quarter 2016 results on May 3, before the opening bell. The company's earnings have surpassed earnings estimates in all of the trailing four quarters, with an average surprise of 10.75%. Starwood's quarterly revenues have also topped the consensus mark over this period. The company's revenues in North America, in particular, would benefit from economic growth, along with lower unemployment numbers and oil prices , which should translate to rising disposable incomes in U.S. households. However, exchange rate fluctuations and various political issues around the globe are expected to hurt the top line to some extent. Meanwhile, a weak performance in China, one of the major markets, would keep the international RevPAR under pressure. Starwood has a Zacks Rank #4 and an Earnings ESP of 0.00%. (Read: Starwood Q1 Earnings: Will Global Issues Hurt Stock? )
Another hotelier, Hyatt is also set to report first-quarter 2016 results on May 3, before the opening bell. The company's earnings have missed estimates in three of the trailing four quarters, with an average negative surprise of -14.34%. Hyatt has been facing major headwinds over the past few quarters in the form of a strong dollar, which is leading to unfavorable foreign exchange translation. Moreover, given its significant presence in Europe and Asia, especially China, the company's first-quarter revenues are likely to be hurt by currency headwinds. However, strong occupancy trends in U.S. would somewhat mitigate these headwinds. Hyatt has a Zacks Rank #3 and an Earnings ESP of -4.17%. (Read: Hyatt Hotels Q1 Earnings: FX Headwinds to Hit Stock? )
Despite the slowdown in the emerging markets, major hotel companies like Hilton Worldwide Holdings Inc. HLT and Marriott International, Inc. MAR have reported better-than-expected numbers in the first quarter, thanks to low expectations.
As such, not all hope is lost for hotel stocks as the market has already adjusted the prices (and their expectations) for the uncertain environment. This leaves ample scope for an earnings beat.
Stay tuned! Check later on our full write-up on earnings releases of these stocks.