Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hilton Worldwide Holdings Inc (HLT, Financial) reported strong second quarter results with RevPAR growth driving adjusted EBITDA and adjusted EPS above the high end of guidance.
- The company surpassed 8,000 hotels globally and achieved net unit growth of 6.2% in the quarter.
- System-wide RevPAR increased 3.5% year over year, driven by robust group performance and continued recovery in business transient.
- Hilton Worldwide Holdings Inc (HLT) opened 165 hotels, totaling more than 22,000 rooms, and signed 63,000 rooms, increasing the pipeline to approximately 508,000 rooms.
- The company expects net unit growth of 7% to 7.5% for the full year, driven by strong pipeline, recent acquisitions, and strategic partnerships.
Negative Points
- The high end of full-year system-wide RevPAR growth expectations was tempered due to softer trends in certain international markets and normalizing leisure growth.
- China RevPAR declined 5% in the quarter due to difficult year-over-year domestic travel comparisons and limited international inbound travel.
- The macroeconomic environment is weakening slightly, which has led to a reduction in the high end of RevPAR and EBITDA guidance.
- There were some timing issues and one-time items affecting non-RevPAR-driven fees, which may not be sustainable in the long term.
- The company noted that the leisure transient segment is normalizing, with some softening in demand due to reduced disposable income among lower-income consumers.
Q & A Highlights
Q: Can you talk about what's added versus a quarter ago with particular attention to SLS and some of the newly acquired brands, as well as maybe what's different on an organic same-brand basis versus a quarter ago?
A: Christopher Nassetta, President, Chief Executive Officer, Director: The additions include Graduate and better-than-expected performance from SLH. Graduate adds about 0.5 points to net unit growth (NUG), while SLH contributes about 1.5 points. The organic growth is slightly less due to some shifts from Q4 to Q1 next year. Overall, we feel good about our development side, expecting historically high levels on signings and starts.
Q: When you think about contract acquisition spend over the next several years, should we be thinking something similar to what you've been spending in terms of contract acquisition spend this year to date?
A: Christopher Nassetta, President, Chief Executive Officer, Director: Last year was elevated due to specific deals. This year will moderate and be lower. On a go-forward basis, expect spending to be comparable to this year. Key money percentage of deals in Q2 was 7%-8%, and overall key money is still less than 10%.
Q: What kind of percentage of your expected group room nights is on the books at present for 2025?
A: Christopher Nassetta, President, Chief Executive Officer, Director: For 2025, it's probably 40%-50%, and for 2026, it's around 25%. By the end of the year, 2025 bookings will likely be 60%-70%. Group mix is back to pre-COVID levels, and the booking window is extending.
Q: What caught your eye operationally through the quarter as we got into the summer travel season? What do you think is changing at the margin?
A: Christopher Nassetta, President, Chief Executive Officer, Director: In Asia Pacific, China is seeing significant travel but with more outbound than inbound. APAC ex-China is strong, led by Korea and Japan. Europe remains strong but slightly weaker in leisure. In the US, group and business transient are strong, while leisure transient is normalizing. Lower-income consumers have less disposable income, affecting leisure transient.
Q: Would love to hear some incremental detail on non-RevPAR related fees, both within the management and franchise fees, as well as the other revenue line.
A: Kevin Jacobs, Chief Financial Officer, President - Global Development: Non-RevPAR-driven fees outperformed in the first half due to timing. Over time, these parts of the business should grow at or above algorithm. Some one-time items contributed to the early strength.
Q: Can you talk a bit about your ability to affect or influence non-RevPAR fee growth?
A: Christopher Nassetta, President, Chief Executive Officer, Director: We have a significant influence through partnerships like AmEx co-brand cards and Hilton Grand Vacations. We constantly modify offers to drive better outcomes. Our strategic actions, like the Bluegreen and Diamond acquisitions, enhance value propositions.
Q: Can you characterize what you think is going on in the conversion environment in terms of acceleration in 2025?
A: Christopher Nassetta, President, Chief Executive Officer, Director: Conversions are accelerating, driven by the strength of our brands and commercial engines. For the full year, conversions will be over 50%, with organic conversions going from 30% to just under 40%. We expect to be solidly in the 6%-7% range for net unit growth next year.
Q: Have you seen any impact on ADR growth or customer demand from bundling the hotel rate and the resort or amenity fees into a single rate quote?
A: Kevin Jacobs, Chief Financial Officer, President - Global Development: No, we have not seen any impact on ADR growth or customer demand from bundling rates and fees.
Q: Can you provide some themes in terms of the brands or types of properties converting to Spark and the average investment by owners?
A: Kevin Jacobs, Chief Financial Officer, President - Global Development: Most Spark conversions are from third-party brands, with owner investments in line with expectations. Early performance has been strong, slightly better than expected. SLH properties are 60% in EMEA, 20% in the Americas, and 20% in Asia Pacific, averaging 45-50 rooms.
Q: How have conversations with developers evolved over the past six months?
A: Kevin Jacobs, Chief Financial Officer, President - Global Development: Conversations remain consistent. Developers are excited about future travel. Capital is slightly less expensive but more constrained. We are taking share in this environment due to the strength of our brands and strategic focus on conversions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
