Hilton's stock rises as analysts welcome new partnership with boutique chain

By Ciara Linnane

Hotel group beats profit estimates for the fourth quarter

Hilton Worldwide Holdings Inc.'s stock rose 1.2% Wednesday, reversing its early losses as analysts focused on a fourth-quarter profit beat and news of a new partnership.

The company (HLT) - which owns brands including the Waldorf Astoria, LXR Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts and DoubleTree by Hilton - said it's teaming up with Small Luxury Hotels of the World, or SLH.

SLH is a group of 560 luxury boutique hotels spanning 90 countries. Under the terms of their deal, Hilton guests will be able to book and earn and redeem points for stays at those hotels.

"These locations are highly complementary to Hilton's vast network of hotels and will give guests access to additional luxury accommodations in hundreds of new destinations," the company said.

Hilton posted net income of $148 million, or 57 cents a share, for the quarter, down from $328 million, or $1.21 a share, in the year-earlier period. Adjusted per-share earnings came to $1.68, ahead of the $1.57 FactSet consensus.

Revenue rose to $2.609 billion from $2.444 billion a year ago, and matched the FactSet consensus.

Systemwide revenue per available room rose 5.7% on a currency-neutral basis and was up 13.5% compared to the same period in 2019, before the onset of the COVID-19 pandemic. Hilton added 24,000 rooms in the quarter.

Read now: Marriott and Hilton added thousands of hotel rooms in 2023 amid travel rebound

"Positive momentum in openings continued throughout the year, with more openings in the fourth quarter than any other quarter in the company's history,' CEO Christopher J. Nassetta said in a statement.

On a call with analysts, Nassetta said RevPAR was buoyed by strong international and group trends. Group RevPAR was up 6% due to an increase in small company meetings and convention demand.

"Demand continued to improve with December system-wide occupancy reaching 2019 peak levels,' he said, according to a FactSet transcript.

The company is expecting those trends to continue with systemwide RevPAR to climb 2% to 4% for all of 2024 on a currency-neutral basis. It expects EPS to range from $6.57 to $6.71 and for adjusted EPS to range from $6.80 to $6.94. The FactSet consensus is for EPS of $7.05, but the company noted the guidance does not include any impact from share buybacks.

The company returned $2.5 billion to shareholders in 2023 between buybacks and dividends and expects to increase that to $3 billion in 2024.

For the first quarter, it expects adjusted EPS of $1.36 to $1.44, while FactSet is expecting $1.42.

The company is expecting an economic soft landing by year-end to restore occupancy to more normalized levels of demand, Nassetta said on the call.

"And we believe given very low supply numbers that are continuing and continued decent economic growth that we're going to continue to have pricing power there and everywhere else," he added.

Melius Research said the report shows that Hilton is "humming" along as management confidence has grown over the last six months.

"Hilton has done a fantastic job of finding areas to exploit growth in a constrained market whether it's conversions or interesting partnerships (like the Small Luxury Hotel one announced today)," analysts Conor Cunningham and Daragh Regan wrote in a note to clients.

"As room growth accelerates (5-6%) above the anemic industry supply (1-2%), Hilton has gained pricing power which continues to push RevPAR upand to the right."

The next catalyst will be the company's March 19 investor day, where it's expected to outline multi-year targets and discuss more of its earnings algorithm, they wrote. Melius has a buy rating on the stock.

The stock has gained 31.3% in the last 12 months, while the S&P 500 has gained 19%.

See also: Choice Hotels slams Wyndham's claims of antitrust risk in its $85-a-share bid for its smaller rival

-Ciara Linnane

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02-07-24 1351ET

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