Hotels’ Earnings Show Things Are Getting Better

Barron’s – Second-quarter earnings results for Hilton Worldwide Holdings and Wyndham Hotels & Resorts are the latest example of a marked improvement for the lodging industry, although the crucial business travel segment continues to lag.

Both stocks took off on Thursday morning. “We continued to make significant progress toward recovery,” Hilton CEO Christopher Nassetta told analysts.

Wyndham Hotels (ticker: WH) on Wednesday reported second-quarter adjusted diluted earnings of 95 cents a share, up from 10 cents in the corresponding period last year. Net revenues were $406 million, compared with$258 million a year earlier, during the heart of the pandemic.

The company, based in Parsippany, N.J., franchises its brands across about 9,000 hotels globally. It is known for economy and midscale offerings such as Super 8, Ramada, and Days Inn.

Global revenue per available room, a key metric known as RevPar, increased by 110% in the quarter year over year but was down 17% from the same period in 2019. RevPar at the company’s economy brands in the U.S. exceeded second-quarter 2019 levels.

Unlike Hilton Worldwide Holdings (HLT) and Marriott International (MAR), which in normal times have a big business and group travel component, Wyndham relies more heavily on domestic leisure travelers . That is a relatively good place to be during the pandemic.

The stock had returned about 20% this year through Wednesday’s close, a little better than the S&P 500’s 18% result. The stock was at $75.35 near midday, up 6.5%.

“Wyndham’s recovery continues to unfold at a faster-than-expected rate,” Baird analyst Michael Bellisario said in a research note Thursday. He noted that second-quarter earnings before interest, taxes, depreciation and amortization, or Ebitda, came in at $168 million, up from $66 million a year earlier, and the dividend is rising 50% to 16 cents a share.

Hilton Worldwide Holdings, meanwhile, reported adjusted diluted earnings per share of 56 cents, compared with a loss of 61 cents a year earlier, on revenues of $1.3 billion. That was below the FactSet consensus estimate of about $1.4 billion, but it was more than double the $564 million during last year’s second quarter.

“The miss was primarily from other revenues and not the fundamental base fees that are more integral to” Hilton, Truist Securities analyst Patrick Scholes wrote in a note.

Hilton, based in McLean, Va., operates an asset light model. It owns relatively few hotel properties, relying instead on management and franchising fees.

Hilton depends heavily on group and business travel customers, segments that have been hard hit by the pandemic.

“While the pace of recovery varies by region, particularly with the uncertainty surrounding coronavirus variants, we expect continued strength in leisure demand and further upticks in business travel to drive continued resurgence in the back half of the year,” the company said in its earnings release.

For Hilton and many other lodging companies, how quickly non-leisure business improves is crucial in determining how soon things get back to normal levels.

Speaking to analyst Thursday morning, Nassetta said the company’s greatest strength has been leisure travel but that it has seen a “significant pickup in business travel” and “significant pickup, while further to go, in the group side.” Group includes events such as conventions, trade shows, and weddings.

“And we continue to see that, notwithstanding the Delta variant and all of the things going on,” he said.

Nassetta said that as of Wednesday, systemwide occupancy in the U.S. was 74% over the previous seven days. That includes urban markets, which have generally lagged during the recovery.

“If we’re running at 74%, that’s not leisure,” he said. “While we have a lot of leisure-oriented hotels, we have a lot of business-oriented hotels, and so midweek occupancy at that level is definitely reflective of business travel.”

The stock has returned about 16% this year through Wednesday. It was at $ 135.08 near midday, for a gain of 5.6%.

Systemwide comparable RevPar jumped by more than 200% year over year in the quarter on a currency-neutral basis, which uses exchange rates at the end of a specified period.

Second-quarter adjusted Ebitda was $400 million, well ahead of the FactSet consensus estimate of $333 million.

Asked about when the company would resume capital returns, notably dividends and share buybacks, Nassetta said he was confident that will occur in the first half of next year.

As of June 30, Hilton’s cash and cash equivalents totaled about $1.1 billion against $8.6 billion of consolidated long-term debt. During the second quarter, Hilton repaid the outstanding balance of nearly $1.2 billion on its revolving credit facility.