Hilton reports net income growth for Q2 despite earnings shortfall

(Canopy by Hilton)

Hilton Worldwide released its second-quarter results for the year on Wednesday, and while both net income and adjusted earnings before interest, taxes, depreciation and amortization improved over the same quarter in 2015, earnings missed analysts' estimates by exactly one cent.

Net income was $244 million for the quarter compared to $167 million for the same period in 2015, an increase of $77 million. Adjusted EBITDA increased 4 percent to $806 million compared to $777 million last year.

But the company reported adjusted earnings of 25 cents per share, missing estimates by a penny. Revenue rose to $3.05 billion, falling short of analysts' projected $3.06 billion. 

“Our systemwide comparable [revenue per available room] growth for the quarter was 2.9 percent on a currency-neutral basis, primarily driven by rate gains,” Christopher Nassetta, president & CEO of Hilton Worldwide, said during the company’s earnings call. “Top-line growth improved quarter-over-quarter, but a softer macro environment continued to weigh on performance—particularly on corporate transient growth.” 

Overall transient revenue grew 2.1-percent systemwide in the quarter. Nassetta noted “weakness” in corporate bookings, but said that the company was supported by continued strength in leisure business. “We continue to see positive trends in group revenue, which increased 4.9 percent in the quarter, and group remains on track to deliver solid revenue growth for the full year as expected,” he said.

On top of same-store growth, Nassetta said that Hilton has benefitted from “accelerating organic net unit growth helping to drive fee growth in the quarter of nearly 9 percent and to increase our adjusted EBITDA margin by 100 basis points year-over-year.” 

Rooms and the Pipeline

Hilton opened 76 hotels with more than 12,200 rooms, of which more than 20 percent were conversions from non-Hilton brands, for net unit growth of nearly 10,400 rooms during the second quarter of 2016. Additionally, Hilton Worldwide grew its global footprint to 104 countries and territories with the openings of the Hilton Tallinn Park in Estonia and the Conrad Manila in the Philippines. 

The company’s nascent Canopy by Hilton brand opened its first hotel in Reykjavik, Iceland, earlier this month, and its newest brand, Tru by Hilton, nearly doubled its pipeline during the quarter to 93 hotels. 


A photo posted by Canopy by Hilton (@canopybyhilton) on

As of the end of the quarter, Hilton Worldwide had approximately 288,000 rooms at 1,822 hotels in its pipeline throughout 91 countries and territories, including 32 countries and territories where Hilton Worldwide does not currently have any open hotels. More than 144,000 rooms, or more than half of the pipeline, were located outside of the United States. 

Approximately 143,000 rooms, or approximately half of the pipeline, were currently under construction. Globally, Hilton has nearly 21 percent of rooms under construction. Including all agreements approved but not signed, Hilton Worldwide's pipeline totaled over 300,000 rooms, which will be almost entirely funded by third-party owner investment.

“We remain on track to add 45,000 to 50,000 net unit store, management and franchise [rooms to the] system this year, an increase of nearly 7 percent and a year-over-year growth rate of nearly 11 percent at the midpoint,” Nassetta said, adding that in the U.S., Hilton accounts for nearly 25 percent of rooms under construction—“well above our 11-percent U.S. market share. We expect net unit growth of over 6 percent for our U.S. managed and franchised portfolio in 2016, which is more than three times greater than forecasted U.S. supply growth.” 

Other Highlights

  • Management and franchise fees for the second quarter increased 9 percent from the same period in 2015 to $471 million
  • Net unit growth was 10,400 rooms in the second quarter contributing to a 7-percent growth in managed and franchised rooms from 2015
  • The company approved 24,000 new rooms for development during the second quarter, growing Hilton's development pipeline to 1,822 hotels, consisting of 288,000 rooms
  • The company filed registration statements for planned spin-offs of Park Hotels & Resorts and Hilton Grand Vacations and announced management teams for both companies; remains on track to complete spin transactions by year-end

Photo (c) 2016 Hilton Worldwide