Hilton Worldwide Holdings (NYSE:HLT) is dealing with unprecedented uncertainty as corporate and transient travel has dried up over the past month as a result of the reaction to the COVID-19 pandemic, and pretty much all events have been canceled for the foreseeable future.
The coronavirus pandemic has hit the industry hard -- MGM Resorts (NYSE:MGM) temporarily closed its hotels in Vegas and other cities over the weekend and canceled its share buyback program. Adding to the uncertainty at MGM, Chairman and CEO Jim Murren announced on Feb. 12 that he is resigning, but will stay on until a replacement is found.
Hilton has responded to the downturn in several ways in recent weeks. The company withdrew its 2020 guidance, increased its stock buyback plan by $2 billion, and announced relief policies for customers who have to cancel or postpone their stays. Let's look at each of these measures in more detail, as well as what a well-known hedge fund manager said about Hilton.
On March 10, Hilton added itself to the list of hotel companies withdrawing previous first-quarter and full-year 2020 outlooks in light of the changing economic conditions.
"With the coronavirus now spreading beyond China and the Asia Pacific region, and the related increase in travel restrictions and cancellations around the world, we believe that the potential negative impact will be greater than our previous estimate and have decided to withdraw our previously announced guidance. We will provide an update during our first-quarter earnings call, based on the information we have available at the time," Christopher Nassetta, president and CEO of Hilton, said. "As a 100-year company that takes the long view, we are confident in our resilient business model, the performance of our leading brand portfolio, and our ability to respond appropriately to market conditions."
The full-year outlook had called for RevPAR (revenue per available room) growth to be flat to 1% growth. Diluted earnings per share for the full year, adjusted for special items, were projected to be between $4.08 and $4.21 -- up from $3.90 at the end of 2019.
Share repurchase program
Hilton has continued to increase shareholder value through its share repurchase program. Last year, the company bought back 16.9 million shares totaling $1.5 billion. Since the company launched its stock repurchase program in March 2017, it has repurchased roughly 55.5 million shares for $4.3 billion.
"I think our strategy on how we want to return free cash flow that we don't need to grow the business to shareholders in the form of a modest dividend but a lot of buybacks over time is the right strategy. We're going to stick with it," Nassetta said back in October during the third-quarter earnings call.
This year, the board authorized the buyback of another $2 billion in shares. The authorization brings the total amount authorized for repurchase to about $2.3 billion. The company notes that the amount and timing of any buybacks are subject to available liquidity and cash flow, and market conditions. It does not obligate Hilton to repurchase any specific dollar amount and may be suspended or discontinued at any time.
MGM Resorts had announced a buyback plan as well, but canceled it on March 15, as my colleague Rich Duprey reported. "As a result of the unforeseen and unprecedented volatility in the financial markets due to coronavirus, and the resulting impact on our ability to determine and maintain an offering price range, we have decided to terminate the tender offer," MGM Chairman and CEO Jim Murren said in a statement.
Hilton has not yet temporarily closed any hotels in the U.S., at least as of this writing. It has increased the cleaning of its public areas and deployed hand sanitizer throughout its properties, among other steps.
Also, it has waived cancellation and change fees in locations that are under government travel restrictions. Further, all current reservations, even those with nonrefundable advanced purchase rates, can be changed or canceled up to 24 hours before arrival between now and April 30. New reservations -- even those described as nonrefundable, booked between now and April 30 for any future arrival date, can be changed or canceled up to 24 hours before arrival.
Canary in a coal mine?
During trading on Thursday, Hilton's stock price was down roughly 50% year-to-date to about $54 per share. It has plunged 28% in the last five days alone.
Hedge fund manager Bill Ackman, CEO of Pershing Capital and an investor in Hilton, said on CNBC Wednesday that "Hilton is the canary in the coal mine," meaning that the problems in the hotel industry are a warning for other industries. In a tweet Wednesday, Ackman called for a national "Spring Break," for a month with only essential services open and governent paying wages until it's over.
Ackman also said he is buying Hilton shares as the price plunges. A well-run company that is one of the worldwide market leaders like Hilton will indeed be a great buying opportunity for investors, but right now there's too much uncertainty to know where the bottom is.