During third quarter earnings call the president and CEO of
Hilton held court, offering broad strokes about expectations for 2025. In a
word, it’s ‘resilient.’
McLEAN, Virginia – Hilton President and CEO Chris Nassetta
held court early during the Q&A session of Wednesday’s 3Q24 earnings call,
offering a lot of insight about what he thinks 2025 will look like from a
performance and development perspective. Generally speaking, he forecasted 2025
as being “resilient.”
“We feel pretty good about 2025,” he said. “I’ve been doing
this for longer than I’m going to admit, maybe close to 40 years. I’ve rarely
seen a stronger consensus view on the macros, particularly here in the U.S… Resiliency
is the word I use to describe our business. That word is getting used a lot to
describe the economy… It remains strong, resilient and showing positive growth.
Our consensus view is that next year will be more of that – we’ll have positive
economic growth. The odds of a recession at this point I think are quite low.”
Resiliency is the word I use to describe our business. That word is getting used a lot to describe the economy… It remains strong, resilient and showing positive growth.
Chris Nassetta
Nassetta went on to say that his best sense is telling him next
year will look a lot like 2024 from a same-store growth perspective. What will
be different is how Hilton gets there -- greater strength in
Asia Pacific, including easier comps in China, flat growth in the U.S., and EMEA
being “a little less good” but still leading the pack in RevPAR growth.
Nassetta said group business will continue to see really
good strength. “We’re up in the in the low- to mid-teens in terms of our [group]
position going into next year,” he said. “Booking windows are extending because
there’s just not enough supply relative to the demand. So, I think you’re going
to see both demand growth and pricing growth in the group segment.”
He added that business transient will follow group in terms of strength. “You’re going to continue to see business transient
grind up. I do think next year we will likely surpass prior peaks of 2019 in
terms of demand levels.”
As for leisure, Nassetta referenced a familiar term, “normalization.”
He suggested demand will be flat to down a little bit, citing “stubbornly a bit
high inflation” as a potential culprit.
“I do believe that we’ll continue to have very solid pricing
power. So, when you when you blend it all out, I think it’ll look a lot like
this year,” he said. “If you blend the whole world together, it’ll be a nice
blend of both demand and pricing.”
Nassetta added that the overarching “atmospherics” with Hilton
teams around the world is consistent with what he just said: “feeling pretty
good. I mean, listen, we’d rather have higher RevPAR growth, always, but we
feel that’s pretty solid. And the last thing I’d say to finish my filibuster,
we obviously feel really good about unit growth.”
We’re up in the in the low- to mid-teens in terms of our [group] position going into next year. Booking windows are extending because there’s just not enough supply relative to the demand. So, I think you’re going to see both demand growth and pricing growth in the group segment.
Chris Nassetta
He concluded by adding, “We’re always trying to deliver
algorithm growth, which is why I say ‘X plus Y needs to equal Z.’ So, same
store [sales] and unit growth need to add up. And I am confident that algorithm
will be alive and well for 2025.”
Solid NUG, soft RevPAR
Prior to answering analyst questions, Nassetta started out by stating strong
net unit growth helped drive solid bottom line performance in the third quarter
and he expects 4Q24 RevPAR growth largely in line with the third quarter,
driven by strong group bookings, continued business transient recovery and
favorable calendar shifts, partially offset by the election and ongoing labor
disputes in the U.S.
Hilton delivered a 3Q24 earnings beat while RevPAR growth
continued to soften to 1.4% (just 1.0% in the U.S) attributed to slower macro
trends, weather challenges, and unfavorable calendar shifts.
Group RevPAR rose more than 5% year over year, led by strong
demand for both corporate and social meetings and events. Nassetta said weekday
pace for October is tracking up more than 300 basis points versus September,
again driven by solid business transient performance and group strength.
Third quarter earnings were 2% ahead of consensus with
Adjusted EBITDA at $904 million ad Adjusted earnings per share of $1.92.
Full-year earnings guidance was unchanged and 4Q24 RevPAR
guidance was lowered 100 bps to 1.0% to 2.0%, not surprising considering
multiple forecasts for a slower fourth quarter. Full-year RevPAR growth
guidance is now 2.0%-2.5%. Adjusted EBITDA ($3.375-$3.405 billion) and Adjusted
EPS ($6.93-$7.03) are unchanged. Net
unit growth guidance is unchanged at 7.0%-7.5%.
I think you are starting to see things free up a little bit in terms of the development environment. Rates haven’t come dramatically down, but they’ve come down a little bit and I think people could see a path to a better day on the capital front.
Kevin Jacobs
Hilton added 33,600 net rooms (36,600 total) in 3Q24, up 7.8%
year-over-year. It approved 27,500 new rooms for development during the third
quarter, bringing the development pipeline to 492,400 (3,525 hotels), which
represents growth of 8% year-over-year. Of the rooms in the development
pipeline, 235,400 were under construction and 280,700 were located outside of
the U.S.
When asked about the potential impact of expected lower
interest rates on growth, CFO and President of Global Development Kevin Jacobs said, “I think
you are starting to see things free up a little bit in terms of the development
environment. Rates haven’t come dramatically down, but they’ve come down a
little bit and I think people could see a path to a better day on the capital
front.”
Jacobs added that Hilton is seeing more conversations around
change of ownerships, which could reflect a bit of a thawing in the bid-ask spread
on deals. He added that this pattern is leading to more applications in the
last 30 days based on change of ownerships. “We’re starting to see a lot of
more activity there, which bodes well,” Jacobs said.
During the quarter, NoMad, Graduate by Hilton and Small
Luxury Hotels of the World became available for reservations on Hilton booking
channels. The addition of SLH hotels brings Hilton’s hotel portfolio to 10
additional countries and territories.
Hilton also marked a number of milestones in the third
quarter: opening more hotel rooms than any other quarter in the history of the
company (conversions accounted for 60%); surpassed 8,000 hotels systemwide; 900th
hotel in Asia Pacific; 900th hotel in EMEA; 700th hotel for Home2 Suites (more
than doubled in the last five years).