Hilton Slides Thursday After Missing Earnings Estimates

Shares of Hilton Worldwide NYSE: HLT fell 1.56% Thursday following disappointing first-quarter results. 

The company operates over 4,000 hotels, timeshare properties, and resorts around the globe. Of course, given the continued pandemic disruptions to the hotel industry, especially internationally, analysts’ expectations were on the low side. Even so, earnings of $0.02 per share missed the consensus estimate of $0.05 per share.

Revenue came in at $874 million, down 54% from the year-earlier quarter when Covid restrictions and travel hesitance began to have an impact. Revenue for the first quarter of 2020 was already down 13% from the same quarter in 2019.

The hotel industry, like many others, uses specific metrics to track its business. In Hilton’s case, revenue per available room, known as RevPAR, declined by around 38% to $46.23.

Industry analysts still believe the overall hotel business will bounce back later this year, boosted mostly by leisure travel. That’s good news-bad news for a company like Hilton, as well as fellow hotel chain Marriott International NASDAQ: MAR which historically relied on business travelers as a main source of revenue. 

Hilton attributed the disappointing quarter to an increase in global Covid cases, resulting in travel restrictions in some parts of Asia and Europe. The company said it temporarily shuttered 275 locations in the quarter, mainly in Europe and the U.S. Even so, that was in improvement over 730 properties with suspended operations a year ago. 

Expecting Positive Momentum

In Hilton’s earnings statement, CEO Christopher Nassetta said, "We are pleased with our first quarter results. While rising Covid-19 cases and tightened travel restrictions, particularly across Europe and our Asia Pacific region, weighed on demand in January and February, we saw meaningful improvement in March and April. We expect this positive momentum to continue as vaccines are more widely distributed and our customers feel safe traveling again.” 

Analysts expect hotels to rebound strongly in the second half of this year but remain reserved about how quickly demand would pick up for business travel, on which major chains including Hilton and rival Marriott rely heavily. 

On a more pessimistic note, some analysts believe slower rates of vaccinations in the U.S. and China may mean more sluggish return to normal - or whatever will pass for normal, going forward. 

Hilton is not alone among travel businesses stumbling through an uneven and uncertain recovery. 

Marriott Vacations Worldwide NYSE: VAC, which operates timeshare properties, on Wednesday reported a quarterly loss of $0.49 per share, which exceeded analysts’ estimates of a $0.29 per share loss. 

Dividends And Buybacks Remain Suspended

Hilton suspended dividends and share buybacks in March 2020. In the earnings call, Nassetta said the company will likely wait to see a more robust recovery, when it can generate positive free cash flow before reinstating buybacks and dividends. 

“We'll talk to our board about it sort of in the second half of the year as the recovery takes shape. And we'd say it's highly likely that starting next year, we get back into the capital return business,” he said. 

Shares ended Thursday's session at $120.71, down 1.92. That was 3.7% below the stock's 50-day moving average. Trading volume was heavier than in Wednesday’s session. 

Despite being beaten down by the pandemic, Hilton shares are still up 70.92% over the past year and 10.21% year-to-date. When it comes to earnings growth that may spur further price appreciation over time, analysts expect earnings of $1.92 per share this year, up from $0.10 in 2020. For next year, that number is expected to double again, to $3.99 per share. 

Analysts are confident about the rebound. On Thursday, Morgan Stanley boosted its price target from $101 to $110, and Raymond James lifted its target from $125 to $135.