Hospitality franchisor and hotel management stalwart Hilton Worldwide (NYSE:HLT) boasted high-single-digit revenue improvement in the second quarter as progress in occupancy and daily rates, coupled with new room openings, positively affected the company's top line. Similar to its first-quarter performance, Hilton chalked up growth across its luxury, mid-scale, and budget property categories. Below, let's walk through highlights from the quarter and review Hilton's earnings through both financial results and key hotel industry metrics.

Note that in the discussion that follows, all comparable numbers refer to those of the prior-year quarter.

Hilton second-quarter results: The raw numbers

Metric Q2 2019 Q2 2018 Change
Revenue $2.48 billion $2.29 billion 8.3%
Net income $260 million $217 million 19.8%
Diluted earnings per share $0.89 $0.71 25.4%

Data source: Hilton Worldwide.

What happened with Hilton this quarter?

  • Hilton's top line was paced by a 10% increase in franchise fees, to $444 million.
  • Systemwide comparable RevPAR, or revenue per available room, rose 1.4% in constant-currency terms.
  • Hilton's systemwide occupancy rose 0.5% to 79.4%, while systemwide ADR (average daily rate) rose 0.7% to $148.93.
  • The company opened 15,700 net additional rooms and is on track to achieve 6.5% total unit growth in 2019.
  • Management approved 28,100 new rooms during the quarter, increasing the company's development pipeline by 8%, to approximately 373,000 rooms, or 2,940 properties.
  • Hilton enhanced its luxury portfolio by opening the Waldorf Astoria Maldives Ithaafushi and Waldorf Astoria Dubai International Finance Centre during the quarter.
  • Diluted earnings per share (EPS) exceeded Hilton's own expected range of $0.81 to $0.86. Adjusted diluted EPS of $1.06 similarly surpassed the hotel chain's projected range of $0.98 to $1.03. Finally, adjusted EBITDA of $618 million landed above the company's anticipated band of between $590 million and $610 million.
  • The organization repurchased $383 million of its own shares this quarter, bringing total repurchases in the first two quarters to $653 million.
  • Operating margin increased by 150 basis points to 19.2%, mostly due to the operating leverage provided by the rise in franchise fees.
A business traveler checks her phone in a hotel lobby.

Image source: Getty Images.

What management had to say

In Hilton's earnings press release, CEO Chris Nassetta lauded results and provided some detail on the factors behind Hilton's outperformance versus management's expectations:

We are pleased with our strong second quarter results, which exceeded the high end of guidance for Adjusted EBITDA and diluted EPS, adjusted for special items, driven by our resilient business model and strong net unit growth. We continued to experience meaningful market share gains during the quarter with increases across all brands and regions, further growing our industry-leading RevPAR index premium. As we look to the remainder of the year, we think we are well-positioned to continue driving growth ahead of the industry.

The "RevPAR index" Nassetta mentions above refers to the indexing of a hotel's RevPAR performance against an aggregation of industry competitors.

Looking forward

Given both top- and bottom-line progress in the first half of the year and more visibility from a benign macro-economic outlook, Hilton tightened its full-year systemwide comparable RevPAR growth range on a currency-neutral basis, from between 1% and 3% to between 1% and 2%. In addition, the company raised 2019 diluted EPS guidance from a band between $2.98 and $3.07 to between $3.02 and $3.09. Adjusted EBITDA is now slotted for between $2.28 billion and $2.31 billion, against a previous forecast of $2.27 billion to $2.31 billion.

For the third quarter, the company has provided the following outlook framework:

  • Systemwide comparable RevPAR growth of 1% to 2% on a currency-neutral basis
  • Diluted EPS of $0.82 to $0.87
  • Adjusted diluted EPS of between $0.98 and $1.03
  • Net income of $239 million to $253 million
  • Adjusted EBITDA of $590 million to $610 million

In the third quarter of 2018, Hilton booked adjusted diluted EPS of $0.77. Thus, if the organization hits its third-quarter target, it will increase adjusted EPS by roughly 31% at the midpoint of the range. Given the pattern of the first two quarters, shareholders shouldn't be surprised if Hilton again outstrips this latest earnings benchmark.

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