Hilton Hotels' Profit Slumps - TheStreet

Hilton Hotels' Profit Slumps

Revenue rises 3.2%.
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The cyclical recovery in hotel earnings may be at hand, but

Hilton Hotels

(HLT) - Get Report

still has a ways to go, after posting a drop in third-quarter profit.

The hotel chain reported net income of $34 million, or 9 cents a share, which was in line with Wall Street expectations but lower than the profit of $48 million, or 13 cents a share, in last year's quarter. Revenue came in at $964 million, up 3.2% from the year-ago $934 million.

"Continued pressure on room rates and higher costs that adversely impacted margins at the company's owned hotels were factors affecting the quarterly results," Hilton said. "Helping partially offset these items were increases in management and franchise fees, along with strong results from the company's timeshare business."

Indeed, revenue from hotels declined 3% over last year, thanks in part to the fact that revenue per available room, a key industry barometer called revpar, was down 1.9% year-over-year. With occupancy flat with 2002 levels, coming in at 73.6%, the company's average daily rate came in at $139.03, down 1.8% from last year.

Costs continued to rise, with total expenses for the quarter coming in at $589 million, up 4% from last year, led by a 2% year-over-year increase in costs at Hilton-owned hotels and rising costs for leased hotels as well.

Hotel operations may have posted lackluster results compared with last year, but Hilton's timeshare operation, called Hilton Grand Vacations Company, continues to outperform. Revenue from this end of the business came in at $94 million, up 31% from the year-ago $71 million. Overall unit sales were up 9% year-over-year, with Las Vegas and Orlando properties showing the greatest strength.

Going forward, Hilton said fiscal 2003 results will match Wall Street expectations, which disappointed investors. The company said 2003 diluted earnings per share will come in around 37 cents a share, matching current Wall Street expectations. It said total revenue for the year will come in at $3.84 billion, with revpar at hotels that were owned a year ago stumbling between 3% and 4%.

"We get a sense that we are in the initial stages of an improved business environment in certain markets, but it may be a couple of quarters before this improvement is fully realized," said Stephen Bollenbach, CEO and president. "Should economic conditions continue to improve, we believe our owned hotels will be major beneficiaries from this increased demand and a limited new supply environment."

Around midday Wednesday, shares in Hilton were falling, leading the rest of the hotel sector lower. The company was off 54 cents, or 3.2%, at $16.36, which values one share of the company at 34.8 times 2004 earnings. The Dow Jones Hotel Index was off 1.7%.