Hilton Worldwide Holdings Inc. (NYSE:HLT)

The period under review demonstrates significant fluctuations in financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) experienced substantial volatility, beginning with a positive value in 2019, followed by a considerable loss in 2020, partial recovery in 2021, and subsequent gains in 2022 and 2023, though remaining below the 2019 level.

Economic Profit Trend

Economic profit consistently remained negative throughout the analyzed period. The largest negative economic profit occurred in 2020, at negative US$2,313 million, coinciding with the lowest NOPAT. While economic profit improved in subsequent years, it remained negative in 2021, 2022, and 2023, indicating that returns did not exceed the cost of capital employed.

The cost of capital exhibited a generally increasing trend over the five-year period, rising from 16.71% in 2019 to 18.00% in 2023. This increase in the cost of capital likely contributed to the sustained negative economic profit, as a higher hurdle rate for returns was required.

Invested Capital

Invested capital initially increased from 2019 to 2020, then decreased in 2021, 2022, and 2023. The peak in invested capital in 2020 did not translate into positive economic profit, likely due to the significantly reduced NOPAT that year. The subsequent decline in invested capital may reflect strategic decisions to optimize capital allocation, but has not yet resulted in positive economic profit.

The relationship between NOPAT and the cost of capital is critical. Despite improvements in NOPAT from 2020 onwards, the increasing cost of capital and the substantial level of invested capital prevented the generation of positive economic profit. The negative economic profit values suggest that the company’s investments did not generate returns sufficient to cover the cost of financing those investments during this period.

NOPAT and Economic Profit Correlation

A strong correlation exists between NOPAT and economic profit. The years with higher NOPAT (2019, 2022, and 2023) corresponded to less negative economic profit values, while the year with a substantial NOPAT loss (2020) resulted in the largest negative economic profit.

Net Income (Loss) Attributable to Hilton Stockholders

The net income exhibited considerable volatility during the observed period. In 2019, the company reported a positive net income of $881 million. However, in 2020, the net income turned negative, recording a loss of $715 million, indicative of significant financial challenges during that year. Subsequently, there was a recovery with net income returning to a positive value of $410 million in 2021. The upward trend continued strongly into 2022, with net income reaching $1,255 million, followed by a slight decrease to $1,141 million in 2023. Despite this recent decline, the net income remained substantially higher than pre-pandemic levels, reflecting an overall recovery and growth trajectory.

Net Operating Profit After Taxes (NOPAT)

The NOPAT followed a pattern similar to net income but demonstrated stronger growth in the latter years. Starting at $1,213 million in 2019, NOPAT decreased to a negative $279 million in 2020, illustrating operational challenges during that period. A recovery phase occurred in 2021 with NOPAT rising to $614 million. This positive trend accelerated markedly in 2022, where NOPAT increased significantly to $1,814 million, followed by a modest decline to $1,514 million in 2023. Despite the slight reduction, the NOPAT values for 2022 and 2023 were well above pre-pandemic levels, signaling improved operational efficiency and profitability post-2020.

Summary of Trends

Both net income and NOPAT experienced a sharp downturn in 2020, likely due to extraordinary external factors impacting financial performance. The subsequent years reveal a consistent recovery, with both metrics surpassing the levels observed in 2019 by a substantial margin in 2022 and 2023. The slight decreases observed in 2023 for both net income and NOPAT suggest a potential stabilization or minor pullback following robust growth. Overall, the company demonstrates resilience and an ability to return to, and exceed, prior profitability levels after a significant dip.

The financial data for the period from December 31, 2019, to December 31, 2023, exhibits notable fluctuations in the provision (benefit) for income taxes and cash operating taxes. The provision for income taxes, expressed in millions of US dollars, shows significant variability over the years. In 2019, the provision stood at a positive 358 million, indicating tax expense. However, in 2020, there was a marked reversal to a negative figure of -204 million, which suggests a tax benefit or credit during that year. This shift likely reflects the impact of extraordinary events or changes in profitability and tax strategy during the pandemic year. In the subsequent years, 2021 through 2023, the provision for income taxes rose steadily from 153 million to 541 million, indicating a return to tax expenses and an increasing tax burden over this period.

Conversely, cash operating taxes demonstrate a consistent upward trend throughout the five-year span. Starting at 474 million in 2019, cash taxes dropped sharply to 130 million in 2020, aligning with the overall decline in tax provision during that year. This decrease likely corresponds to reduced taxable income or enhanced tax reliefs during 2020. From 2021 onwards, cash operating taxes increased significantly each year—from 249 million in 2021, to 539 million in 2022, and reaching 911 million in 2023. The sharp increase in cash operating taxes in 2023 suggests a substantial rise in taxable income or changes in tax payment policies, possibly reflecting improved operational performance or changes in tax laws.

Provision for Income Taxes

2019: Positive tax expense noted at 358 million.

2020: Shift to a tax benefit of -204 million, indicating reduced tax burden or credits.

2021-2023: Progressive increase from 153 million to 541 million, signaling rising tax expenses.

Cash Operating Taxes

2019: Moderate cash tax payment of 474 million.

2020: Sharp decline to 130 million, reflecting reduced cash tax outflows amid challenging conditions.

2021-2023: Steady increase from 249 million to 911 million, highlighting growth in actual tax payments.

Overall, the data reveals that 2020 was an anomalous year with reduced tax liabilities, both on a reported and cash basis, likely influenced by external economic disruptions. Following this period, there was a clear recovery and escalation in both tax expenses provided for and taxes paid in cash, which points to improved profitability and potential normalization of tax obligations. The divergence between provision and cash taxes is less pronounced in later years, indicating closer alignment between accounting tax expense and cash tax outflow.

The financial data reveals several distinct trends regarding the company's debt, equity position, and invested capital over the five-year period.

Total Reported Debt & Leases

The total reported debt and leases consistently fluctuated within a range between approximately $9.1 billion and $11.6 billion. A notable increase occurred in 2020, rising sharply from $9.2 billion to $11.6 billion, likely reflecting elevated borrowing or leasing activities during that year. Subsequently, the debt level declined in 2021 and 2022 but increased again in 2023, settling slightly above $10 billion. This pattern suggests the company managed its leverage actively, possibly in response to external conditions impacting its financing needs.

Total Hilton Stockholders’ Deficit

The stockholders’ deficit exhibited significant volatility across the period, with all reported values remaining negative, indicating persistent equity shortfall. The deficit deepened markedly in 2020, deteriorating from -$482 million to -$1.49 billion, which may denote accumulated losses or increased liabilities. While some improvement occurred in 2021, the deficit worsened again in 2022 and reached its peak negative value of -$2.36 billion in 2023. This trend reflects ongoing challenges in achieving positive equity and may raise concerns about the company's capital structure and financial stability.

Invested Capital

Invested capital showed a rising trend from 2019 to 2020, increasing from $11.4 billion to almost $13 billion. After 2020, there was a steady decline over the next three years, with invested capital decreasing to approximately $10.5 billion by 2023. This decline might indicate asset disposals, reductions in capital expenditures, or changes in operational investments, potentially reflecting a strategic shift or responses to external market pressures.

In summary, the data suggests that the company experienced elevated leverage and equity deficits during the analyzed timeframe, especially around 2020 and onwards. Despite managing invested capital levels, ongoing equity challenges may impact financial flexibility and risk profile. Close monitoring and possible strategic adjustments to improve equity and manage debt levels could be necessary to enhance overall financial health.

The period under review demonstrates a fluctuating, but generally improving, financial performance as measured by economic value added metrics. Economic profit consistently registers as negative across all observed years, though the magnitude of the loss diminishes over time. Invested capital experiences an initial increase, followed by a decline, while the economic spread ratio reflects the relationship between these two factors.

Economic Profit

Economic profit begins at a loss of US$694 million in 2019 and reaches its largest negative value of US$2,313 million in 2020. A substantial improvement is then noted, with losses decreasing to US$1,403 million in 2021 and further to US$186 million in 2022. However, the most recent year, 2023, shows a slight increase in the loss to US$374 million.

Invested Capital

Invested capital increases from US$11,409 million in 2019 to US$12,956 million in 2020. Subsequently, a downward trend is observed, with invested capital decreasing to US$11,581 million in 2021, US$11,342 million in 2022, and finally to US$10,493 million in 2023. This suggests a potential reduction in the company’s asset base or a shift in capital allocation strategies.

Economic Spread Ratio

The economic spread ratio mirrors the trends in economic profit. It begins at -6.08% in 2019 and deteriorates significantly to -17.85% in 2020. Improvements are then evident, with the ratio increasing to -12.12% in 2021 and -1.64% in 2022. The ratio concludes at -3.57% in 2023, indicating a less negative spread but still representing a shortfall in generating returns exceeding the cost of capital.

The correlation between economic profit and the economic spread ratio is strong. The reduction in the magnitude of negative economic profit from 2020 to 2022 is accompanied by a corresponding improvement in the economic spread ratio. The slight reversal in 2023 for both metrics suggests potential headwinds impacting profitability. The decreasing invested capital may be a contributing factor to the improved spread ratio in later years, but the continued negative economic profit indicates that returns are not yet exceeding the cost of capital.

The economic profit margin exhibited significant volatility between 2019 and 2023. Initially negative, the margin deteriorated substantially in 2020 before showing improvement in subsequent years, though remaining negative throughout the period. This analysis details the observed trends in economic profit, adjusted revenues, and the resulting economic profit margin.

Economic Profit

Economic profit demonstrated a marked increase in absolute losses from 2019 to 2020, moving from a loss of US$694 million to a loss of US$2,313 million. A substantial improvement occurred in 2021, with losses decreasing to US$1,403 million. This positive trend continued into 2022, where losses were further reduced to US$186 million. However, losses increased again in 2023, reaching US$374 million.

Adjusted Revenues

Adjusted revenues experienced a significant decline in 2020, falling to US$4,522 million from US$9,435 million in 2019. Revenues began to recover in 2021, reaching US$5,660 million, and continued this upward trajectory in 2022 with US$8,946 million. The most recent year, 2023, saw further revenue growth, reaching US$10,450 million, surpassing the 2019 level.

Economic Profit Margin

The economic profit margin was -7.35% in 2019. It experienced a dramatic decrease in 2020, reaching -51.16%, coinciding with the largest absolute economic loss. The margin improved considerably in 2021 to -24.79% and continued to improve in 2022 to -2.08%. However, the margin worsened slightly in 2023, settling at -3.58%. The movement of the margin closely mirrors the fluctuations in economic profit, indicating a strong relationship between profitability and revenue generation.

Despite the recovery in adjusted revenues, the economic profit margin remained negative throughout the analyzed period. While the trend from 2020 to 2022 indicated a narrowing of the loss, the slight deterioration in 2023 suggests potential challenges in converting revenue growth into economic profit.