Hilton Worldwide Holdings Inc. (NYSE:HLT)

The period under review demonstrates significant fluctuations in 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 then growth in 2022 before declining slightly in 2023. The cost of capital exhibited a generally increasing trend throughout the period, while invested capital showed a more erratic pattern.

Economic Profit Trend

Economic profit consistently remained negative across all years examined. The largest negative economic profit occurred in 2020, at -2,314 US$ millions, coinciding with the lowest NOPAT value. While economic profit improved in subsequent years, it remained negative, reaching -375 US$ millions in 2023. This indicates that, throughout the period, returns generated by the invested capital were insufficient to cover the cost of that capital.

NOPAT and Economic Profit Relationship

A strong correlation exists between NOPAT and economic profit. The substantial decline in NOPAT in 2020 directly resulted in the most significant negative economic profit for that year. Similarly, the increase in NOPAT from 2020 to 2022 corresponded with a reduction in the magnitude of the negative economic profit. The slight decrease in NOPAT from 2022 to 2023 led to a corresponding increase in the negative economic profit.

Cost of Capital Impact

The cost of capital generally increased from 15.71% in 2020 to 18.01% in 2023. This upward trend in the cost of capital likely contributed to the sustained negative economic profit, as a higher cost of capital makes it more difficult to generate a positive economic profit even with improving NOPAT. The increase in cost of capital in 2021, despite an increase in NOPAT, limited the improvement in economic profit.

Invested Capital Fluctuations

Invested capital peaked in 2020 at 12,956 US$ millions, then decreased over the following three years, reaching 10,493 US$ millions in 2023. While a decrease in invested capital could theoretically improve economic profit, the consistently negative NOPAT and rising cost of capital outweighed this effect. The changes in invested capital do not appear to have a clear, direct relationship with the economic profit trend during this period.

In summary, the period was characterized by negative economic profit, driven primarily by insufficient NOPAT relative to the cost of capital. While NOPAT showed some recovery after 2020, it was not enough to offset the increasing cost of capital and consistently generate positive 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 deficit of US$2,314 million in 2020. A substantial improvement is then noted, with losses decreasing to US$1,404 million in 2021 and further to US$187 million in 2022. However, the most recent year, 2023, shows a slight increase in the loss to US$375 million, indicating a potential reversal of the positive trend.

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 -17.86% in 2020. The ratio improves considerably in subsequent years, reaching -1.65% in 2022. However, similar to economic profit, the ratio worsens slightly in 2023, settling at -3.58%. This indicates that the return on invested capital, relative to the cost of capital, is improving but remains negative, and the recent trend suggests a potential weakening of this improvement.

Overall, the analysis suggests a period of initial difficulty followed by recovery, with a recent indication of potential challenges. While the magnitude of economic losses is decreasing, the company has yet to generate positive economic profit. The decline in invested capital may be a contributing factor to the improved economic spread ratio, but the slight deterioration in both economic profit and the economic spread ratio in 2023 warrants further investigation.

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$2,314 million. A substantial recovery occurred in 2021, with losses decreasing to US$1,404 million. Further improvement was seen in 2022, with losses reduced to US$187 million. However, losses increased again in 2023, reaching US$375 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, reaching US$8,946 million in 2022 and further increasing to US$10,450 million in 2023. This indicates a recovery in revenue generation following the initial downturn.

Economic Profit Margin

The economic profit margin was -7.36% in 2019. It experienced a dramatic decrease in 2020, reaching -51.17%, reflecting the disproportionate impact of lower revenues on profitability. The margin improved considerably in 2021 to -24.80% and continued to improve in 2022 to -2.09%. However, the margin worsened slightly in 2023, settling at -3.59%. While the trend from 2020 to 2022 showed positive movement, the 2023 result suggests a potential plateau or reversal in the improvement of economic profitability relative to adjusted revenues.

The relationship between adjusted revenues and economic profit suggests that while revenue recovery is occurring, the cost of capital or operational inefficiencies continue to result in negative economic profit. The widening gap between revenue growth and economic profit margin in 2023 warrants further investigation to determine the underlying causes and potential mitigation strategies.