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Hilton (HLT) Meets Q2 Earnings Estimates, Tweaks 2018 View (Revised)

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Hilton Worldwide Holdings Inc. (HLT - Free Report) reported mixed results for the second quarter of 2018, wherein earnings met analysts’ expectations but revenues lagged. Markedly, after posting earnings beat for straight six quarters, Hilton’s adjusted earnings of 70 cents per share in the second quarter met the Zacks Consensus Estimate. Earnings increased 37% year over year.

Hilton reported revenues of $2.3 billion. This missed the consensus estimate of $2.5 billion. However, revenues increased 10.4% from the year-ago quarter on higher comparable revenue per available room (RevPAR).

During the second quarter, Hilton opened 123 hotels taking room count to 17,100. The company achieved net unit growth of 15,800 rooms, indicating an 18% increase from the prior-year quarter. As of Jun 30, Hilton’s development pipeline comprised of more than 2,370 hotels with 362,000 rooms throughout 105 countries and territories. Additionally, 194,000 rooms in the pipeline were located outside the United States while 186,000 rooms were under construction.

We believe that improving economic indicators have been a blessing for the hotel industry as these have perked up leisure and business travel demand. Under such circumstances, aggressive expansion strategies, an industry-leading loyalty program and an asset-light business model bode well for Hilton.

RevPAR and Adjusted EBITDA

In the quarter under review, system-wide comparable RevPAR increased 4% (on a currency-neutral basis) at the high end of the guided range of 3-4%. The improvement was driven by growth in occupancy and average daily rate (ADR). Strength in the company’s international hotels mainly in Europe and Asia Pacific also contributed to the increase.

At managed and franchised hotels, comparable RevPAR increased 3.9% in the quarter. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $555 million, up 10% year over year. Better-than-expected fee growth aided adjusted EBITDA.

Cash, Debt and Share Repurchase

As of Jun 30, 2018, cash and cash equivalents balance was $505 million, lower than $670 million at the end of Dec 31, 2017. Long-term debt was $7.7 billion. In the second quarter, the company repurchased 18.5 million shares of its common stock for roughly $1.3 billion and an average price per share of $72.01.

In June 2018, Hilton paid a quarterly cash dividend of 15 cents per share on its common stock, for a total of $45 million. In July 2018, the company's board of directors authorized a regular quarterly dividend of 15 cents payable on Sep 28 to holders of record as of the close of business on Aug 10.

Third-Quarter 2018 Outlook

For third-quarter 2018, adjusted earnings are anticipated between 71 cents and 76 cents per share. The Zacks Consensus Estimate is pegged at 76 cents. Hilton projects system-wide RevPAR to increase 2.5% to 3% year over year on a comparable as well as currency-neutral basis. Adjusted EBITDA is envisioned in the $540-$560 million band. Also, the company expects management and franchise fee revenues to improve in the band of 8-10% year over year.

2018 View Upbeat

For 2018, adjusted earnings per share are projected between $2.64 cents and $2.71 cents, the lower end being slightly up from the prior estimate of $2.62-$2.71 cents. The Zacks Consensus Estimate is pegged at $2.69. System-wide RevPAR is anticipated to witness a year-over-year improvement of 3-4% on a comparable and currency-neutral basis compared with the earlier estimate of 2-4%. Meanwhile, adjusted EBITDA is expected in the $2,070-$2,100 million band, still increasing at 8-10%.

Also, the company continues to expect management and franchise fee revenues to increase in the band of 9-11% year over year. It continues to anticipate net unit growth of 6.5%. 

(We are reissuing this article to correct a mistake. The original article, issued on July 26, 2018, should no longer be relied upon.)

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