Group, global performance underpin Hilton’s strong Q2
 
Group, global performance underpin Hilton’s strong Q2
25 JULY 2018 4:12 PM

Hilton hit the high end of its guidance with 4% systemwide comparable revenue-per-available-room growth in the second quarter.

MCLEAN, Virginia—Group business was a star performer for Hilton during the second quarter of 2018, according to executives on the company’s second-quarter earnings call.

Strong group performance, along with above-outlook performance in several key global regions, led to 4% revenue-per-available-room growth for the company compared to the same quarter in 2017.

Hilton President and CEO Chris Nassetta also pointed out the company’s record pipeline, which had 362,000 guestrooms at the end of the quarter, representing 9% growth compared to the same time last year. Year to date, Hilton has opened approximately 23,000 net rooms and remains on track to deliver approximately 6.5% net unit growth for the full year, he said.

“We continue to deliver across all of our major regions, segments and areas of the business,” Nassetta said.

After the close of the first quarter, Hilton’s full-year 2018 outlook for systemwide comparable RevPAR growth was between 2% and 4%, and now at the close of the second quarter, Nassetta said the company expects that growth to be on the high end of the range, between 3% and 4%.

According to the company’s Q2 earnings release, net income for the quarter was $217 million, up 44% from Q2 2017, and adjusted earnings before interest, taxes, depreciation and amortization was $555 million in the quarter, up 10%. Systemwide comparable occupancy in the quarter was 79.5%, up 1.3% over the same quarter last year, and average daily rate was $150.76, up 2.3% over Q2 2017.

On Wednesday afternoon, Hilton’s stock was trading at $80.37, up 0.6% year to date. The Baird/STR Hotel Stock Index was flat (+0.01%) for the same time period.

Segmentation highlights
“Group position remains up in the mid-single digits for the full year and into 2019,” Nassetta said. “Booking pace in the quarter for all future periods was up in the low double digits. Positive macroeconomic trends continue to support positive industry fundamentals.”

He said those performance highlights on the group side only support what was already a strong leisure-transient segment and an improving business-transient segment.

“For the second half of the year and the full year, you will ultimately see group outperform all segments,” he said. “Group was the outperformer in the first half and it will be in the second half. … The important point is that business transient is so much better than it’s been. Last year you were talking about one (percent) to one-and-a-half percent if you were lucky and this year we expect it to be more like 3%. Leisure’s been strong so it will likely end up where it has been, and group will be likely four-plus (percent) growth by the end of the year.”

Pipeline highlights
Nassetta said Hilton’s total signings for the year are on track to hit more than 110,000 rooms, surpassing 2017’s record levels, “boosted in part by tremendous growth across Europe, the Middle East and Africa, where total signings are on pace to increase more than 40% year over year.”

Another highlight: Conversion signings are up “more than 60%” across the company compared to last year.

Those two factors are contributing to what Nassetta called “a record pipeline” for Hilton.

The U.S. is where most of the company’s conversions activity is located, and Nassetta said new projects outside the U.S. are supporting overall pipeline health and growth.

“We started the year feeling that in the U.S. we would sign fewer deals,” he said. “We’d get more than our fair share, but (we thought) the whole market would be down. In reality what looks like is going to happen is … we’ll be relatively flat in the U.S. Europe and the Middle East will be up. Asia/Pac is doing fine.”

Kevin Jacobs, Hilton’s EVP and CFO, said that on average, conversions tend to be in the pipeline for about six months, and what’s driving the overall number is “the active transactions environment” in the U.S.

That overall active transactions market leads to a stronger pipeline, Nassetta said.

International performance highlights
Jacobs shared regional breakdowns for the company’s hotel performance:

  • United States: RevPAR grew 3.5% “led by strong group demand, particularly in company meetings and convention business, and better-than-expected results at luxury resorts,” Jacobs said. Revenue from inbound international travelers was up 8% in the quarter, due to increases from China, Europe and Canada. The U.S. should notch RevPAR growth between 2.5% and 3.5% for the year, he said.
  • Americas outside the U.S.: Q2 RevPAR grew 6.5%, Jacobs said, driven by “a mix of strong convention and corporate-transient demand trends across Canada, and broader market strength across the Caribbean and South America.”
  • Europe: RevPAR in Europe was up 6.3% in the quarter compared to the same period last year, driven in part by strengthening business in Turkey and business related to the World Cup in Russia.
  • Middle East and Africa: Jacobs said RevPAR was roughly flat in this region, “as softening leisure and group demand in the (United Arab Emirates) offset improving trends in Egypt.”
  • Asia/Pacific: Jacobs said strong leisure demand across resort properties led to 7.3% RevPAR growth compared to Q2 2017. RevPAR in greater China grew more than 11% in the quarter, with occupancy increasing by more than 8%.

Remainder of 2018
“I think there are lots of good reasons for optimism and I feel very good about the rest of the year,” Nassetta said about the third and fourth quarters.

For Q3, Hilton expects systemwide RevPAR to increase between 2.5% and 3%. Nassetta said he attributes the third quarter’s performance to the holiday shift.

“The Fourth of July fell on the worst day of the week possible,” he said. “You have a very weak start to the quarter (with Fourth of July) and you end the quarter in a weak way because the Jewish holidays are moving.”

The fourth quarter would be influenced in part by weather-related comps from 2017, he said.

And while Nassetta recognized the difficulty of forecasting too far ahead, he pointed out that so far, Hilton is not seeing meaningful impacts on business because of changing U.S. trade policies.

“We’re not seeing anything we can measure,” he said.

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