Hilton, Inc. :HLT-US: Earnings Analysis: Q1, 2017 By the Numbers : May 4, 2017

Hilton, Inc. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Hilton, Inc. – La Quinta Holdings, Inc. and Wyndham Worldwide Corporation (LQ-US and WYN-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2161 million, Net Earnings of USD 74 million.
  • Gross margins narrowed from 19.53% to 18.74% compared to the same period last year, operating (EBITDA) margins now 16.94% from 21.56%.
  • Year-on-year change in operating cash flow of -80.79% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 2161 2920 2942 3051 2750
Revenue Growth (%YOY) -21.42 2.24 1.62 4.41 5.81
Earnings (mil) 74 -387 187 239 309
Earnings Growth (%YOY) -76.05 -147.54 -32.97 48.45 106
Net Margin (%) 3.42 -13.25 6.36 7.83 11.24
EPS 0.22 -1.18 0.57 0.72 0.93
Return on Equity (%) 7.95 -25.09 11.65 15.23 20.34
Return on Assets (%) 1.46 -5.94 2.89 3.71 4.81

Access our Ratings and Scores for Hilton, Inc.

Market Share Versus Profits

Revenues History
Earnings History

HLT-US‘s change in revenue this period compared to the same period last year of -21.42% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that HLT-US is holding onto its market share. Also, for comparison purposes, revenues changed by -25.99% and earnings by 119.12% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 19.53% to 18.74%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 21.56% to 16.94% in this time frame. For comparison, gross margins were 21.34% and EBITDA margins were 19.73% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

HLT-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 20.53 days, compared to last year’s level of 5.15 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

HLT-US‘s change in operating cash flow of -80.79% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 15.42% to 12.82% and (2) one-time items that contributed to a decrease in pretax margins from 9.60% to 5.09%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Hilton, Inc.

Company Profile

Hilton, Inc. operates as a holding company, which provides hospitality services through its subsidiaries. It engages in the owning, leasing, managing, developing, and franchising hotels, resorts, and timeshare properties. The company operates through the following segments: Management and Franchise, Ownership, and Timeshare. The Management and Franchise segment manages hotels, resorts and timeshare properties owned by third parties and license its brands to franchisees. The Ownership segment consists of hotels that it owns or lease. The Timeshare segment markets and sells timeshare intervals, operates timeshare resorts and a timeshare membership club and provides consumer financing. The company was founded on March 18, 2010 and is headquartered in McLean, VA.

CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally. Try any of our analysis, screener or portfolio premium services free for 7 days. To get a quick preview of our services, check out our free quick summary analysis of HLT-US.