In December, Hilton Worldwide Holdings (HLT) pulled off a $2.35 billion IPO. On its first day of trading, the stock climbed about 7.5%. But Hilton’s first earnings report as a public company was a bit lackluster. So far in today’s trading, HLT stock is down about 2%.
The Hilton earnings report was a mixed bag. On the positive side of things, revenues rose by 13% to $2.64 billion, which was above the Street consensus of $2.46 billion. However, the profits were subpar.
When adjusting for one-time items, Hilton earnings came to 11 cents per share, which was a one penny increase on a year-over-year basis. However the analysts’ consensus was for a much more robust 17 cents per share on HLT stock.
Expenses in the quarter spiked by 23% to $2.55 million. The main driver was the expenditures for the IPO.
Yet even looking forward, it looks like costs will remain hefty for the company. For the full-year, Hilton earnings are expected to be in a range of 57 cents per share to 61 cents per share. Those numbers are significantly below the consensus estimate of 65 cents per share. Given this, it should be no surprise that HLT stock is feeling some pressure today.
But the company may be lowballing things to make it easier to hit its numbers. If anything, it looks like HLT stock could benefit from strength on the top line. In Q4, the company’s occupancy rate increased by 1.2% to 68.4% and the revenue per room rose by 4.7%. With the improvement in the U.S. economy — and increases in business travel — it seems reasonable that growth should continue for HLT stock.
It also helps that Hilton has a massive footprint, with more than 4,000 hotels and 670,000 rooms. Some of its brands include Conrad, Waldorf Astoria, DoubleTree and Embassy Suites. In other words, the company is in a nice position to keep increasing rates, especially as demand continues to grow. The company is also investing more in properties like DoubleTree, Homewood and Hampton to appeal to higher-end customers.
But it could still take some time for these trends to play out. The ride could be a bit bumpy in the meantime, which is exactly why investors are a bit dour on HLT stock today.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.