Despite volatility in the global economy that is creating a headwind for the hospitality business, hotel franchising conglomerate Hilton Worldwide (NYSE:HLT) revealed appreciable growth in its third quarter on Wednesday, and management bumped up the company's full-year outlook to boot. As we walk through the results of the last three months below, note that all comparable numbers refer to those of the prior-year quarter.
Hilton Worldwide: The headline numbers
|Metric||Q3 2019||Q3 2018||Change|
|Revenue||$2.40 billion||$2.25 billion||6.7%|
|Net income||$288 million||$162 million||77.8%|
|Diluted earnings per share||$1.00||$0.54||85.2%|
Key details from the quarter
- Franchise and license fees continued within a vigorous year-long trend, advancing 9% to $443 million.
- Hilton's systemwide comparable RevPAR (revenue per available room) inched up 0.4% in constant-currency terms.
- RevPAR is calculated from two metrics: occupancy and average daily rate (ADR). Systemwide occupancy rose 0.4% to 79.1%, while ADR slipped by 0.1% to $145.11.
- The company placed 17,400 new rooms into service over the last three months. Management affirmed that Hilton is on track to increase total units by 6.5% in 2019.
- Hilton's development pipeline consisted of 2,530 hotels, or 379,000 rooms at quarter-end; the company grew its pipeline by 25,200 rooms during the quarter.
- Hilton is on track to expand its luxury portfolio by 17% this year. In the third quarter, the company opened several new premium properties, including the Waldorf Astoria Los Cabos Pedregal in Mexico and the Conrad Tianjin and Conrad Shenyang, both in China.
- Third-quarter adjusted EBITDA of $605 million fell near the top of management's projected range of $590 million to $610 million.
- The organization realized a gain on sale of $81 million on the disposition of the Hilton Odawara Resort & Spa in Japan. This gain on sale was largely responsible for the wide improvement in net earnings between the current and prior-year quarters, as seen in the table above.
- Operating margin increased by 110 basis points to 18.2%, after adjusting for the gain on sale of the Odawara property.
Management's comments on the quarter
In its latest economic forecast, the International Monetary Fund anticipates global gross domestic product (GDP) expansion of just 3.2% in 2019 and observes that "global growth remains subdued." Multiple factors, from trade wars to Brexit uncertainty, have dampened the growth environment for multinational consumer discretionary stocks.
Though acknowledging that conditions could be more amenable, CEO Chris Nassetta suggested in Hilton's earnings press release that its momentum in building market share has proved a strong force in countering external headwinds:
Despite the overall slowing macro environment, we are pleased to deliver strong bottom-line results for the third quarter. Adjusted EBITDA was toward the high end of guidance and diluted EPS [earnings per share], adjusted for special items, exceeded our expectations, driven by strong net unit growth. Additionally, we continue to achieve market share gains across all brands and regions year to date.
The fourth-quarter outlook and a recast of full-year expectations
Looking ahead to the fourth quarter, Hilton supplied shareholders with the following targets:
- Diluted EPS of $0.74 to $0.79
- Adjusted diluted EPS of between $0.91 and $0.96
- Net income of $213 million to $227 million
- Adjusted EBITDA of $563 million to $583 million
- Systemwide comparable RevPAR will be roughly flat against the prior-year quarter on a currency-neutral basis.
The hospitality giant raised its full-year earnings outlook with just one quarter to go. Hilton now expects diluted EPS to fall between $3.16 and $3.21 versus a prior range of $3.02 to $3.09. The company's adjusted EBITDA goal has been tightened ever so slightly to $2.285 billion to $2.305 billion from a previous band of between $2.280 billion and $2.310 billion.
Finally, Hilton provided clarity on 2019 systemwide RevPAR growth. From last quarter's estimate of 1% to 2% currency-neutral expansion, management has settled on a discrete target of 1% currency-neutral improvement in RevPAR this year against 2018.