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Hilton Worldwide Beats Q3 Earnings & Revenues, Ups View

Zacks Equity Research

Virginia-based hotelier, Hilton Worldwide Holdings Inc. (HLT) posted third-quarter 2014 results with both earnings and revenues beating the Zacks Consensus Estimate. Also, the company’s earnings, earnings before interest tax depreciation and amortization (:EBITDA) and revenue per available room (RevPAR) were better than expected. Driven by the encouraging results, the company raised its earnings and EBITDA guidance for 2014. Share price of the company went up 1% in response.

Adjusted earnings of 18 cents beat the Zacks Consensus Estimate of 17 cents by 5.9%. Also, it was above the management’s guidance of 15 cents to 17 cents per share. The upside reflects year over year increase in revenues attributable to higher occupancy and room rates worldwide. However, earnings declined 18% year over year owing to increase in total expenses and increase in interest expense.

Revenues of $2.64 billion increased 8% year over year and beat the Zacks Consensus Estimate of $2.62 billion by 1%. The upside reflects increase in revenues in all the segments and solid RevPAR growth. Management and franchise fees were $383 million, up 16% year over year. Revenues from the ownership segment were $1.09 billion in the quarter, up 8% year over year while revenues from the Timeshare segment were $295 million, up 2.3% year over year.

RevPAR & Margins

In the third quarter, RevPAR for comparable system-wide properties grew 8.4%, driven by a 4.2% rise in average daily rate (:ADR) and 3.1% rise in occupancy. The company’s RevPAR growth in the quarter was higher than the guided range of 5.5% to 7%.

Comparable system-wide RevPAR was up 8.8% in the U.S. and 7.2% internationally. The strong results reflect strong performance in both the Americas and Europe.

Adjusted EBITDA increased 13% year over year to $645 million, driven by a rise in EBITDA in both Management and franchise and Ownership segments. Adjusted EBITDA margin was 37.1%, up 160 bps year over year.

Fourth-Quarter 2014 Guidance

Hilton expects adjusted earnings per share (EPS) to range within 16 to 18 cents, up from the year-ago earnings of 11 cents per share.

The company expects system-wide RevPAR to increase between 6% and 7% on a comparable and currency neutral basis compared with the year-ago quarter. Further, adjusted EBITDA is expected to range between $630 million and $650 million. Management and franchise fees are expected to increase in the range of 12% to 14%.

Full-Year 2014 Outlook Raised

Hilton increased its EBITDA and earnings guidance for 2014. The company expects adjusted EPS in the 69 to 71 cents range, up from the previous guidance of 67 cents and 70 cents and the year-ago earnings of 53 cents per share.

The company increased the lower end of its expectation for system-wide RevPAR in the range of 6% to 7% on a comparable and currency neutral basis, compared with the previous expectation of 5.5% to 7%. Meanwhile, Ownership segment RevPAR is expected to increase in the range of 5% to 6% compared with the previous expectation of 4.5% to 6.5% increase.

Adjusted EBITDA is projected to be between $2.47 billion and $2.49 billion, up from the prior range of $2.43 to $2.48 billion.

2015 Guidance

The company expects system-wide RevPAR to increase in the range of 5% to 7% on a comparable and currency neutral basis compared with 2014.

Our Take

Hilton is progressing well on the back of a growing North American business, steady international exposure and increasing market share. The increase in business and worldwide leisure travel trends are also positives. However, owing to its international presence, the company remains vulnerable to fluctuation in exchange rates and various uncertainties. Particularly, uncertainty in Russia and the Ukraine, higher taxes in Japan, and the political turmoil in Thailand are expected to impact revenues.

A few other leading hoteliers who are also exposed to this uncertain environment include Starwood Hotels & Resorts Worldwide Inc. (HOT), Marriott International, Inc. (MAR) and Hyatt Hotels Corporation (H).

Hilton currently has a Zacks Rank #3 (Hold).

Read the Full Research Report on HOT
Read the Full Research Report on MAR
Read the Full Research Report on H
Read the Full Research Report on HLT


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