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Earnings Results: Hilton stock soars 5.7% as hotel operator trounces earnings estimates and raises outlook

Shares of Hilton Worldwide Holdings Inc. soared 5.7% Wednesday, after the hotel operator blew past estimates — including its own — for the second quarter and forecast continued recovery in travel for the balance of the year.

The company posted net income of $368 million, or $1.32 a share, for the period, up from $130 million, or 46 cents a share, in the year-earlier period. Adjusted per-share earnings came to $1.29, well ahead of the $1.05 FactSet consensus.

Revenue rose to $2.240 billion from $1.329 billion a year ago, also ahead of the $2.110 billion FactSet consensus.

The net income figure exceeded the company’s guidance, as systemwide comparable RevPAR, or revenue per available room, rose 54.3% on a currency neutral basis.

“Given our strong results in the quarter, coupled with our confidence in continued recovery throughout the year, we are raising our full-year guidance, including our outlook for capital return,” CEO Christopher J. Nassetta said in a statement.

Hilton is now expecting full-year adjusted EPS of $4.21 to $4.46, compared with a FactSet consensus of $4.03. For the third quarter, it expects adjusted EPS of $1.16 to $1.24, compared with a FactSet consensus of $1.15.

Systemwide RevPAR is expected to rise 37% to 43% from 2021, on a currency-neutral basis.

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On a call with analysts, Nassetta said Hilton is expecting to deliver full-year adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, that is above the 2019 level and to generate record free cash flow.

“In the second half of the year based on the trends we’ve been seeing, our expectation is business transient is going to be sort of on a revenue basis equal to 2019 levels,” Nassetta said, according to a FactSet transcript. “And then when we think about the group side, while we don’t think in the second half, we’ll get all the way back to where we were in ’19. We’re going to get awfully close.”

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The executive acknowledged the uncertain macroeconomic environment — including recession fears — and short booking window as factors making the outlook blurry. But the hotel industry is benefiting from pent-up demand following more than two years of the coronavirus pandemic.

“We talk to our customers all the time, not just the group customers. We’re talking to all of our customers, ” he said. And the feedback going into the fall is “people have to travel more.”

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Hilton is also benefiting from a shift in spending to services from goods as the world normalizes. That creates new demand in the leisure business, he said.

Bernstein analysts welcomed the “solid beat” and raise in guidance, but stuck with their market perform rating on the stock and price target of $161 that is about 27% above its current price.

“Even with weakness YTD, Hilton remains the best performing hotel name through-pandemic, helped by the faster US recovery thus far,” analysts led by Richard Clarke wrote in a note to clients.

“That phenomenon is ending and Hilton’s other regions have caught up (America’s ex-US leading the pack, Europe recovering quicker). The current level is a great entry point into Hilton longer term, but there are names with more exposure to faster recovering segments right now,” they wrote.

Nassetta said the strength in Europe, where big cities like London are “raging” this summer was a welcome surprise,

But Asia is a challenge, especially China, where COVID-related lockdowns have proved disruptive and the outlook difficult to predict. Hilton is optimistic conditions in China will be different by the time of the Chinese Party Congress in October.

“I do think it will be a while before we have a ton of Chinese travelers traveling internationally or any of us are going to China,” he said. But domestic travel in China can be a big benefit given the size of the population.

The pop in Hilton’s shares pulled other hotel stocks higher Wednesday with Wynn Resorts Ltd.

up 1.6% and Marriott International Inc.

up 3.2%.

Hilton shares are down 18.6% in the year to date, while the S&P 500

has fallen 16.6%.

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