Hilton Profit Up, Room Rates Rising

Wed Jul 28, 2004
By Peter Henderson

LOS ANGELES (Reuters) - Hilton Hotels Corp. (HLT.N: Quote, Profile, Research) on Wednesday reported a 39 percent rise in quarterly earnings as some of its major urban hotels filled near capacity, giving the company leverage to raise room rates.

Hilton raised its forecast, but not as much as hoped for by investors, given recent results from rivals that point to an upturn in the industry after three slow years.

Slow convention business in Chicago, a major city for Hilton, also cut performance, and shares fell 1 percent in mid-afternoon trade.

Beverly Hills, California-based Hilton said profit rose to $75 million, or 19 cents per share, from $54 million, or 14 cents per share, a year earlier.

Tax-related items added a penny per share to earnings, leaving adjusted profit in line with the analysts' consensus view of 18 cents, according to a poll by Reuters Estimates.

Revenue rose 9 percent to $1.1 billion from $976 million, and comparable revenue per available room rose 8.3 percent, partly reflecting the slow travel economy a year earlier around the Iraq war.

Hilton, best known for its high-end flagship hotels, also owns the Hampton Inn and Embassy Suites chains.

"Many investors were expecting a bit more," in the quarter and the outlook, said Fulcrum Global Partners analyst Joe Greff. He added that Hilton's properties did better than expected but interest expense was higher than he predicted and Hilton did not bump up the forecast much.

Hilton now expects full-year earnings per share in the middle to the high end of the range of 50 cents to 59 cents. In April, it forecast profit in the low- to mid-point of that range, and analysts, on average, expected 56 cents.

It said it sees comparable revenue per available room increasing between 6 percent and 8 percent for 2004, up from the April growth forecast of 5 percent to 7 percent.

Hilton's results came after Marriott International Inc. (MAR.N: Quote, Profile, Research) and Starwood Hotels & Resorts Worldwide Inc. (HOT.N: Quote, Profile, Research) posted strong quarters and said business travelers and groups -- the slowest portion of the lodging market to react to economic upticks -- were back on the road.

Co-Chairman and Chief Executive Stephen Bollenbach signaled on a conference call that rising room rates would drive future profits as rooms became scarce.
"This game is still in its early stages," he said. Hotel recoveries begin with higher occupancy, which lets hoteliers raise prices, an easy way to increase profit.

New York and Boston hotels already have 90 percent occupancy rates, while San Francisco, the technology center that collapsed with the Internet bubble, is improving.

Chicago, which accounts for about 7 percent to 8 percent of Hilton earnings before interest, taxes, depreciation and amortization, is still dogged by a lack of conventions.

Hilton owns three major Chicago hotels, and executives expect convention business to improve in 2005 and accelerate again in 2006.

Hilton develops, owns, manages or franchises about 2,100 hotels, resorts and vacation ownership properties. Its other chains include Doubletree and Homewood Suites.

Hilton shares fell 6 cents at $17.98 in New York Stock Exchange trade.

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