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Why Is Hilton Worldwide (HLT) Down 1.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Hilton Worldwide Holdings Inc. (HLT). Shares have lost about 1.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hilton Worldwide due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Hilton Beats Q1 Earnings Estimates, Raises ‘24 View

Hilton reported solid first-quarter 2024 results, with earnings and revenues beating the Zacks Consensus Estimate and rising year over year.

The company's performance was backed by notable improvements in revenue per available room (RevPAR), attributed to higher occupancy rates and average daily rates (ADR). It also benefited from its fee-based business model and robust development initiatives. Hilton maintained its momentum in signings, starts, and openings, reflecting a solid pipeline. Based on the growth trajectory observed thus far, the company is optimistic about sustaining the momentum in the near future.

Q1 in Detail

Hilton reported adjusted earnings per share (EPS) of $1.53, beating the Zacks Consensus Estimate of $1.41 by 8.5%. The reported value rose 23.4% from the year-ago quarter’s reported adjusted EPS of $1.24.

Quarterly total revenues of $2.57 billion surpassed the consensus mark of $2.55 billion. The top line increased 12.2% year over year.

During the quarter, franchise and licensing fees improved 12.4% year over year to $571 million year over year. Our estimate for the metric was $603.1 million.

Base and other management fees and incentive management fees rose 32.5% year over year to $106 million and 7.7% year over year to $70 million year over year, respectively. Our model predicted management fees and incentive management fees to be at $82.4 million and $66 million, respectively.

Owned and leased hotel revenues moved up 2.8% year over year to $255 million compared with the year-ago quarter’s levels. Our estimate for the metric was $326.8 million.

RevPAR and Adjusted EBITDA

In the quarter under review, system-wide comparable RevPAR grew 2% year over year (on a currency-neutral basis), owing to an increase in occupancy and ADR. Our model predicted the reported quarter’s system-wide RevPAR to rise 3.8% year over year.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) during the first quarter was $750 million, up 17% year over year. Our estimated adjusted EBITDA was expected at $691.7 million.

Balance Sheet

As of Mar 31, 2024, cash and cash equivalent balance (including restricted cash) was $1.4 billion, up from $875 million reported in the prior quarter. As of the first quarter of 2024, Hilton reported long-term debt outstanding of $10.3 billion, up from $9.3 billion reported in the previous quarter, excluding deferred financing costs and discounts, with a weighted average interest rate of 4.89%.

During the quarter, Hilton repurchased 3.4 million shares of its common stock worth approximately $662 million. The company returned $0.7 billion to shareholders through a combination of share buyback and dividends.

Management declared a quarterly cash dividend of 15 cents per share. The dividend will be payable on Jun 28 to shareholders of record as of May 17, 2024.

Business Updates

During first-quarter 2024, Hilton opened 106 new hotels. It also achieved net unit growth of nearly 14,200 rooms. During the quarter, the company unveiled properties, including Conrad Orlando in Florida, LXR Hotels & Resorts in Hawaii and the Waldorf Astoria and Canopy by Hilton brands in Seychelles. Additionally, Hilton expanded its brand presence with the introduction of the Curio Collection by Hilton in Kenya and Motto by Hilton in Peru. The company also announced its first standalone residential property outside the United States, Waldorf Astoria Residences Dubai Downtown. During the quarter, Hampton by Hilton achieved significant milestones, opening its 3,000th hotel globally and emphasizing further expansion into Africa.

As of Mar 31, 2024, Hilton's development pipeline comprised nearly 3,380 hotels, with almost 472,300 rooms across 119 countries and territories — including 31 countries and regions where it currently has no running hotels. For 2024, the company expects net unit growth in the range of 6-6.5%.

Q2 & 2024 Outlook

For second-quarter 2024, Hilton anticipates net income in the range of $443-$457 million. Adjusted EBITDA is expected to be between $890 million and $910 million. It projects second-quarter EPS (adjusted for special items) to be between $1.80 and $1.86.

For second-quarter 2024, management forecasts system-wide RevPAR (on a currency-neutral basis) to increase in the 2-4% band on a year-over-year basis.

For 2024, the company estimates net income in the range of $1.58-$1.62 billion compared with the previous estimate of $1.69-$1.73 billion. Adjusted EBITDA is expected to be between $3.37 billion and $3.42 billion compared with the prior expectation of $3.33 billion and $3.38 billion. It suggests general and administrative expenses for 2024 in the range of $415-$430 million.

Hilton expects 2024 EPS (adjusted for special items) in the range of $6.89-$7.03, up from the previous expectation of $6.80-$6.94. Full-year capital return is anticipated to be approximately $3 billion.

Management anticipates 2024 system-wide RevPAR (on a currency-neutral basis) to increase 2-4% year over year.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Hilton Worldwide has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hilton Worldwide has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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