Hilton 4Q22 results beat the Street almost across the board; Nassetta yet to see headwinds impacting the rest of 2023.
Hilton posted better than expected earnings for 4Q22 on Thursday
buoyed by the ongoing recovery in global travel, especially on the group and
meetings side of the ledger.
Hilton President and CEO Chris Nassetta said small- and
medium-sized meeting businesses remained an important and growing part of Hilton’s
business travel segment, accounting for roughly 85% of their segment mix and
enhancing overall resiliency. “Group saw the biggest quarter-over-quarter
improvement with RevPAR fully recovering to 2019 levels driven by both
occupancy and ADR. company meetings boosted performance, improving more than
seven points versus the third quarter.”
For 4Q22, RevPAR growth versus 2019 was +7.5%, beating R.W.
Baird’s +5% estimate. Adjusted EPS was $1.59 versus the Street’s $1.22;
adjusted EBITDA was $740 million versus the Street’s $666 million. In addition,
franchise fees were $689 million (+$11 million Baird estimate), while
owned/leased fees were $69 million ($34 million Baird estimate).
Hilton, now with the highest levels of free cash flow in its
history, returned >$1.7 billion to shareholders in 2022, and 2023 guidance
calls for capital returns of $1.7-$2.1 billion.
System-wide comparable RevPAR increased 24.8% and 42.5% (1%
shy of 2019), on a currency neutral basis, for the fourth quarter and full
year, respectively, compared to the same periods in 2021.
“We saw continued progression across all segments with
leisure, business transient and group RevPAR all exceeding 2019 levels,” Nassetta
said during the earnings call on Thursday. “System-wide occupancy reached 67%,
up from the third quarter and just three points shy of prior peak levels.
Overall, rates remained robust, increasing 13% versus 2019, with all segments
exceeding expectations. As expected, leisure trends remain strong throughout
the quarter with RevPAR surpassing 2019 levels by approximately 12%.”
If the fundamentals are supply and demand, that’s what ultimately drives the results. The supply side is quite muted… and that continues to be met with very strong demand. For the record, we have not seen any weakening. We have not seen any telltale signs. There are no threads of any of our major segments sort of backing up.
Looking ahead, Nassetta said Hilton expects performance to
be driven by continued growth in all segments and aided by easy first quarter
comps due to Omicron. He said Hilton expects meaningful recovery across Asia,
and solid growth in U.S. urban markets as group business continues to recover. “Comprising
roughly 20% of our normalized mix, group is a segment with the greatest
visibility for 2023,” he said. “Group position is up 25% year-over-year, and
nearly back to 2019 levels. Even with robust forward bookings, the pipeline remains
strong with tentative bookings up more than 20% versus last year, helped by
rising demand for company meetings as organizations bring their teams back
together. Additionally, pricing for new bookings is up in the low-double-digits,
and lead volumes in January were at all-time highs.”
Hilton approved 24,400 new rooms for development during the
fourth quarter, bringing its pipeline to 416,400 rooms as of December 31, 2022.
Nassetta added that more than 90% of the deals in Hilton’s
current pipeline do not have any key money or other financial support. “We also
saw continued strength in construction starts throughout the year with more
than 70,000 rooms for the full year, an increase of more than 9% versus 2021,”
he said, adding the Hilton remains confident in its ability to return to 6% to
7% net unit growth over the next couple of years.
Hilton’s newly launched premium economy conversion brand,
Spark by Hilton, has more than 200 hotels in various stages of negotiation and
98% of those deals are coming from third-party brands, according to Nassetta.
Full-year guidance for RevPAR stands at +4-8% y/y; adjusted
EBITDA of $2.8 billion to $2.9 billion, which is slightly ahead of consensus;
and adjusted EPS stands at $5.42-5.68. Full-year net unit growth is now guiding
at 5% to 5.5% with analysts suggesting some 2022 projects may have been pushed
into 2023, especially from China.
When asked about how macroeconomic conditions might impact
performance in the second half of 2023, again Nassetta’s tone remained bullish.
“If the fundamentals are supply and demand, that’s what
ultimately drives the results,” Nassetta said. “The supply side is quite muted…
and that continues to be met with very strong demand. For the record, we have
not seen any weakening. We have not seen any telltale signs. There are no
threads of any of our major segments sort of backing up. What I think is
driving that are both secular and cyclical tailwinds. First you continue to see
consumers shifting how they’re spending their money. Maybe they’re spending a
little bit less but how they’re spending it continues to shift more towards
experiences, and we’re Exhibit A on the experience side. The international
markets are opening – not just inbound to the U.S., but across the world.”
Nassetta said that while Asia Pacific begins to open and
markets like Japan “raged” in the fourth quarter, it will take China a bit more
time to ramp-up but predicts it will happen rapidly. “You’re already starting
to see significant travel within China. We expect, particularly in the second
half of the year, to see a big tail tailwind from that. And there continues to
be broader, pent-up demand across all segments.”
Referring again to group business, Nassetta added that “they’ve
been planning like crazy” and those results will start to hit in the second
half of this year.