It has been about a month since the last earnings report for Hilton (HLT - Free Report) . Shares have added about 6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Hilton due for a pullback? 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 catalysts.
Hilton’s Q4 Earnings Beat Estimates, Revenues Lag
Hilton has reported mixed results for fourth-quarter 2018, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Notably, revenues missed the consensus mark for the fourth straight quarter.
Hilton’s adjusted earnings of 79 cents per share surpassed the consensus estimate of 69 cents by 14.5% and surged 49.1% on a year-over-year basis.
Revenues were $2,288 million, which missed the consensus mark of $2,322 million. However, the reported figure increased 10.6% from the year-ago quarter on higher comparable revenue per available room (RevPAR).
The company primarily gained from increased average daily rate (ADR) and continual unit expansion. During the fourth quarter of 2018, Hilton opened 142 hotels, taking the total room count to 22,500. It also achieved net unit growth of 19,000 rooms, indicating roughly 7% increase from the prior-year quarter. During 2018, Hilton launched over 450 hotels, taking room count to more than 66,000, and achieved net unit growth of nearly 57,000 rooms, marking a 10% increase from the same period of 2017.
As of Dec 31, 2018, Hilton's development pipeline comprised more than 2,400 hotels, with more than 364,000 rooms throughout 103 countries and territories — including 35 countries and territories, where Hilton currently does not have any running hotels. Additionally, 195,000 rooms in the development pipeline were located outside the United States, and 184,000 rooms were under construction.
RevPAR and Adjusted EBITDA
In the quarter under review, system-wide comparable RevPAR increased 2% (on a currency-neutral basis) and was at the lower end of the company’s guidance of 2-3%. The uptick was driven by growth in ADR. Strength in the company’s international hotels, mainly in Europe, also contributed to the upside.
At managed and franchised hotels, comparable RevPAR increased 1.8% in the quarter under review. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $544 million, up 12.4% year over year.
Cash, Debt and Share Repurchase
As of Dec 31, 2018, cash and cash equivalent balance summed $484 million. Long-term debt outstanding was $7.4 billion. In the fourth quarter, the company repurchased 2.2 million shares of its common stock for roughly $160 million. Average price per share was $71.83.
In December 2018, Hilton paid a quarterly cash dividend of 15 cents per share on its common stock for $44 million. In February 2019, the company's board of directors authorized a regular quarterly dividend of 15 cents, payable on or before Mar 28 to shareholders of record as of the close of business on Mar 1.
Highlights of 2018 Results
Adjusted earnings in 2018 were $2.79 per share, surpassing the Zacks Consensus Estimate of $2.70. Net income was $769 million for the year. Adjusted EBITDA in 2018 was $2,101 million, exceeding the company’s guidance.
System-wide comparable RevPAR increased 3% in 2018 and total revenues moved up 9.5% year over year in 2018.
For first-quarter 2019, the company anticipates adjusted earnings between 73 cents and 78 cents per share. The Zacks Consensus Estimate for the same is currently pegged at 57 cents, far below the company’s guided range. Hilton projects system-wide RevPAR to increase 1-3% year over year on a comparable as well as currency-neutral basis. Adjusted EBITDA is envisioned to be $470-$490 million. Also, the company expects management and franchise fee revenues to improve 7-9% year over year.
For 2019, the company projects adjusted earnings of $3.66-$3.78 cents per share. The Zacks Consensus Estimate for the same is currently pegged at $3.09, far below the company’s guidance. System-wide RevPAR is anticipated to witness a year-over-year improvement of 1-3% on a comparable and currency-neutral basis. Meanwhile, adjusted EBITDA is expected to be $2,240-$2,290 million.
Additionally, the company continues to expect a year-over-year increase of 7-9% in management and franchise fee revenues. It anticipates net unit growth of 6.5%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 32.56% due to these changes.
At this time, Hilton has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Hilton has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.