Hilton lowers full-year guidance after weaker quarter
 
Hilton lowers full-year guidance after weaker quarter
24 OCTOBER 2019 8:36 AM

On the company’s third-quarter earnings call, Hilton President and CEO Chris Nassetta said RevPAR growth for the quarter was lower than expected and lowered full-year expectations.

MCLEAN, Virginia—Hilton’s revenue-per-available-room growth of 40 basis points was weaker than expected for the third quarter, which President and CEO Chris Nassetta partially attributed to softness in U.S. transient business on the company’s earnings call with analysts.

Hilton had previously predicted RevPAR growth of 1% to 2% for the full year, but due to underperformance in the third quarter and expectations that same trend will carry into the fourth, Nassetta said full-year RevPAR is now expected to be flat to 1% growth.

“As we look to next year, uncertainties in the macro environment make it difficult to forecast,” Nassetta said. “Most indicators suggest continued economic growth for all major global regions, but at a slower pace.”

Q3 performance for business transient and leisure transient was similar with “both basically flat,” with leisure-transient business having a more difficult comp during the quarter, he said.

“Business transient was up a tick and leisure transient was down a tick, recognizing part of the leisure-transient thing, a small part of it, it was weaker,” he said. “I’m not trying to candy coat that because there was also a leisure-transient comp that was more difficult this year over last year.”

Nassetta added business-transient growth was anemic.

“It was positive but anemic. … I think it just had to do with broader weakness,” he said. “We did see just a little bit of color. If you look at business transient and you break it down by segments, small business, medium and big businesses, we saw more impact in larger business, which we have a theory on that. They’re sort of more tied in, most of them are public, they’re more tied in real time to what’s going on in the marketplace and maybe reacting to the uncertainty that is out there a little bit more rapidly than small or medium businesses.”

Economic environment
There are a lot of uncertainties in the current economic environment, such as the U.S.-China trade war, an impeachment process and other broader economic issues that are causing the industry to have its “caution flag” out, Nassetta said. Some of these issues need to be settled for hoteliers to feel a little more comfortable, he said.

“You’re going to have an election that will happen, but that’s not going to happen until late in the year, but trade deals getting done, Brexit getting resolved … impeachment resolution, any of these things or a number of them together getting resolved … could give you a boost,” he said. “It could sort of release a different level of decision-making, and people being willing to invest more, hire more and thus have to and want to travel more.”

Before hoteliers can pull in their caution flags in a little, the industry needs to see a number of these things settle down, he said.

Leverage levels, brand distribution
When asked where owners’ leverage ratios stand, Nassetta said it’s lower.

“As compared to going into the Great Recession, I would say, debt is fairly available, abundantly available—it’s not as crazy available as it was then,” he said. “My sense, certainly within our system, is people are much more sensibly levered as we look to the possibility of a slower growth period of time.”

When asked by an analyst how to think about the distribution of newer brands around the world, Nassetta said that is ongoing.

“We are constantly looking at the market opportunities based on demand patterns around the world,” he said. “We are constantly looking at whether we should be creating demand and introducing various brand concepts around the world that may not even exist in certain markets, like extended stay in China as an example.

“You should assume, yes, that part of our program is not only continuing to grow the brands that we have, adding incrementally to that brand portfolio over time, but how we distribute those strategically is front and center in our mind and something we spend a lot of time thinking about.”

He added that brand introductions will continue around the globe, such as the introduction of Tapestry into Europe and the likely entrance of extended stay in China over the next 12 months.

As of press time, Hilton’s stock was trading at $95.70 a share, up 33.3% year to date.

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