Hilton President and CEO Chris Nassetta admits it's particularly difficult to read the tea leaves on the future of both the hotel industry and the broader economy, but for now, there are more positives than negatives on the horizon for his company.
Speaking during Hilton's third-quarter earnings call with investors and analysts, Nassetta said he expects the broad hotel industry rebound to continue even in the face of a global recession.
Hilton didn't provide guidance for 2023, and Nassetta said the company is still working through its annual budgeting process. But he also said he continues to believe "the fundamentals are currently pretty strong."
"We're not naive to what's going on with [the Federal Reserve] here and central banks in other parts of the world in terms to trying to tame inflation ... we do think we have a reasonably unique setup that is maybe different than some other industries," he said.
On the whole, Nassetta said there are more forces weighing in favor of continued growth than against it. He added the hotel industry will continue to see low supply growth and high demand growth, meaning "the laws of economics are alive and well."
"We have headwinds and tailwinds," he said. "The headwinds are the macro. The world is slowing down, right? ... But we have tailwinds. The tailwinds are spending more on experiences, international travel, pent-up demand and the incremental demand associated with people having to run their businesses, gather, and meetings and events of all sorts — whether it's social or business. At the moment, those tailwinds are stronger than the headwinds."
During the call, Nassetta said the third quarter was strong for Hilton, marking "a very important milestone in our continued recovery" as the first quarter to surpass 2019 systemwide revenue-per-available-room levels. From a development perspective, the company also surpassed 100,000 rooms open across Europe.
Chief Financial Officer and President of Global Development Kevin Jacobs said Hilton executives have been surprised that results across Europe "sort of defy gravity," but it's not clear how long that may continue as the operating environment continues to grow more difficult.
"We don't see any reason to believe that [strong performance in Europe] won't continue, and you'll probably have in that part of the world some headwinds next year," he said. "You think about the inflation that they've got going on and how that affects labor, energy costs, utilities and things like that. But if the fundamental environment holds up, we should do just fine."
During the quarter, Hilton set record levels of returning capital to shareholders, repurchasing 4 million shares of common stock. Including dividends, the company paid out $538 million to shareholders in the quarter and $1.3 billion year to date through October, according to its earnings release.
Nassetta said Hilton will continue to return capital, expecting to finish the year between $1.5 billion and $1.9 billion, as the company continues to see record levels of free cashflow. But he added Hilton is less likely to fund that activity by borrowing as the cost of debt continues to increase.
Third-Quarter Results
Hilton recorded a 5% increase in systemwide RevPAR compared to the same period in 2019 and a 29.9% increase year over year.
Hilton's adjusted earnings before interest, taxes, depreciation and amortization was $732 million for the quarter. The company earned $346 million in net income. Both those figures exceeded the high end of the company's previously stated guidance for the quarter.
Hilton now projects 40% to 43% year-over-year RevPAR growth for full year 2022, which would be down 1% to 3% compared to 2019.
As of press time, Hilton stock was trading at $130.32 a share, down 16.4% year to date. The NASDAQ composite was down 29.6% for the same period.
Editor’s note: Chris Nassetta serves on the board of directors for Hotel News Now’s parent company, CoStar Group.