Shareholders of Hilton Hotels
The operator of the Doubletree, Embassy Suites, Hampton Inns, and namesake Hilton Hotel Chains reported systemwide improvements, with net income leaping 39% to $75 million, or $0.19 per share, from $54 million the year before, on a 9% rise in revenues to $1.07 billion.
Overall, revenues per available room (RevPAR) at comparable company-owned hotels grew 8.3%. The gains were driven not only by a 3.3% increase in occupancy (to 76.7%) but also by renewed pricing power. The average daily rate rose 3.6% to $153 and constituted 40% of the increase. The numbers were a vast improvement over last quarter's 2.9% RevPAR bounce, though not quite in line with gains of 13% at Marriott or an astounding 17% at Starwood.
Hilton owns a relatively small percentage of its hotels, including gems such as the luxurious Waldorf-Astoria, Hilton Hawaiian Village, and Hilton New Orleans Riverside. The vast majority are either franchised or managed by Hilton for the benefit of the owner. Management and franchise fees derived from these operations grew 10% to $97 million, helped by both RevPAR gains and the addition of new properties.
Hilton Grand Vacations, the firm's timeshare division, remains a bright spot. A 34% rise in unit sales in resort destinations such as Florida, Hawaii, and Las Vegas, coupled with increasing prices, translated to total revenues of $98 million -- 24% ahead of last year's second quarter.
Hilton's strong second quarter has prompted management to adjust full-year guidance upward. Earnings per share have been lifted to between $0.55 and $0.59, with forecasted revenues of $4.17 billion. RevPAR is expected to rise between 6% and 8%, and an additional 115 to 130 hotels (15,000 to 17,000 rooms) will be added to the system.
Hilton, along with most of its rivals, has seen a robust beginning to the summer travel season, with occupancy rates as high as 90% in key markets such as Boston and New York. Also, by keeping only its most profitable properties (just 55 of 2,173 are owned), margins are on the rise, increasing 140 basis points for comparable, owned hotels last quarter. Furthermore, generating a larger percentage of revenues through management and franchise fees has partially reduced exposure to the cyclicality of the industry. Nevertheless, with a P/E in the mid-30s, Hilton's attributes have not gone unnoticed. Investors may want to wait for a more opportune time before checking in.
Fool contributor Nathan Slaughter owns none of the companies mentioned.