Hospitality giant Hilton Worldwide (NYSE:HLT) issued fourth-quarter 2018 earnings on Wednesday before markets opened. The owner of Hilton, Doubletree, Embassy Suites, and other luxury, midscale, and budget brands saw brisk revenue growth in the quarter as room expansion and higher rates compensated for flat occupancy against the prior-year quarter. Below, we'll evaluate Hilton's performance using common hotel industry metrics, and also discuss management's outlook for 2019. (Note that in the discussion that follows, all comparable numbers refer to the prior-year quarter, the fourth quarter of 2017.)
Hilton fourth-quarter results: The raw numbers
|Metric||Q4 2018||Q4 2017||Change (YOY)|
|Revenue||$2.29 billion||$2.07 billion||10.6%|
|Net income||$224 million||$729 million||(69.3%)|
|Diluted earnings per share||$0.75||$2.27||(67%)|
What happened with Hilton this quarter?
- Hilton achieved growth of 7% in units during the fourth quarter, opening 142 hotels with a total of 22,000 rooms. Factoring in rooms taken out of service, the company added a net of 19,000 rooms to its inventory over the last three months.
- Management reported that conversions from non-Hilton brands accounted for 25% of the new rooms added during the quarter. Hilton ended 2018 with over 900,000 rooms worldwide.
- Revenue per available room, or RevPAR, improved by 2% primarily due to an 2% increase in systemwide average daily rate (ADR) to $144.44 per room night.
- Systemwide occupancy was flat against the prior-year quarter at 72.4%.
- Hilton's development backlog at the end of 2018 consisted of 2,400 hotels, equating to 364,000 rooms. Just over 50% of the development pipeline is currently under construction, and roughly 54% of rooms in Hilton's total backlog will be located outside the U.S.
- The company launched a new luxury brand, XLR Hotels and Resorts. The brand's first property, the Habtoor Palace Dubai, will be followed by the opening of the Biltmore, Mayfair in London this spring.
- Operating margin increased by 340 basis points to 15.9% due to the leverage provided by higher revenue.
- The improved profitability was also apparent in adjusted EBITDA of $544 million, which exceeded management's projected range of $518 million-$538 million.
- Hilton repurchased $160 million of its own stock during the quarter. This latest round of buybacks brings the organization's 2018 repurchase tally to $1.7 billion.
- The company's wide differences between 2018 and 2017 net income and diluted earnings per share (EPS) seen in the table above resulted from a one-time tax benefit of $549 million, which the company booked in the fourth quarter of 2017 as a result of U.S. tax legislation.
What management had to say
In Hilton's earnings press release, CEO Christopher Nassetta commented on both the brisk growth of the last three months and management's optimistic outlook for the quarters ahead:
We are pleased with our fourth quarter and full year results, exceeding the high end of our guidance for Adjusted EBITDA and diluted EPS, adjusted for special items, driven in part by better than expected net unit growth, up roughly 7 percent versus the prior year. In particular, we continued to expand our luxury portfolio with several exciting openings and the launch of our luxury collection brand, LXR Hotels & Resorts. We expect continued strength in room growth, combined with RevPAR growth, to provide a good setup for the year ahead.
Hilton released its first-quarter and full-year earnings outlook along with its quarterly report. The company expects RevPAR growth of 1%-3% for both the first quarter and full year. Diluted EPS is projected to land between $0.56 and $0.61 in the first quarter, and between $3.00 and $3.12 in 2019.
As for adjusted earnings, Hilton anticipates adjusted diluted EPS of $0.73-$0.78 in the first quarter, expanding to $3.66-$3.78 for the full year. Adjusted EBITDA is slated to fall in a range of $470 million-$490 million in the next three months, and $2.24 million-$2.29 million for the year.
At the midpoint of the full-year range, Hilton will improve its adjusted EBITDA by roughly 8% against the $2.1 billion earned in 2018. Investors have cheered the high-single-digit projected earnings bump: As of this writing, shares have ascended as much as 7% in the trading session following Hilton's earnings release.