Hilton Shows Staying Power

The hotel giant posts a strong quarter.
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Updated from 9:23 a.m. EDT

Hilton Hotels

(HLT) - Get Report

reported strong first-quarter profits and beat Wall Street expectations as the cyclical lodging recovery rolled along. The company also lifted its forecast for the rest of the year.

The Beverly Hills, Calif., hotelier said net income was $64 million, or 16 cents a share, up 73% from $37 million, or 10 cents a share a year earlier.

Earnings included special items that boosted EPS by a penny. They included a $2 million pretax impairment charge, a $6 million pretax gain on asset sales and a $5 million pretax gain related to the company's synthetic fuel investment.

Excluding those items, Hilton's EPS of 15 cents was 2 cents ahead of the average analyst estimate from Thomson First Call.

Shares gained 26 cents, or 1.2%, to $22.29.

Revenue totaled $1.08 billion, up 8% from a year before and slightly ahead of the $1.07 billion consensus estimate.

"Strong demand from both business and leisure travelers, particularly the former, is enabling us to significantly increase room rates at most of our owned hotels," said Stephen F. Bollenbach, Hilton's CEO. "New York and Hawaii, our two biggest markets, have been especially strong, benefiting from increased demand, limited new competitive supply and a significant gain in international in-bound travel from Europe and Asia owing in part to the weak dollar. Our expectation is that these, and our other important markets, will continue to perform well in future periods, with Chicago improving in the second quarter of this year."

With more travelers checking in, revenue per available room, or revpar is rising nicely. At Hilton's comparable owned hotels, revpar grew 9.1% year over year.

The company's ability to beat analyst estimates partly stemmed from strength in its vacation timeshare business, analysts said. The unit's profits increased more than 50% in the first quarter on strong unit sales in Las Vegas, Orlando, Fla., and Hawaii. Revenue jumped 34% to $146 million from $109 million a year before.

One area of disappointment was the 1.0 percentage point margin growth at company-owned hotels. "Margin performance was weaker than we would have expected, given the strong revpar and price gains," says Citigroup Smith Barney analyst Michael Rietbrock in a research note. One culprit was slow growth in food and beverage revenue -- up 2.5% in the quarter -- but that should change as the company's group and convention business continues to recover, the analyst adds.

During the quarter, Hilton continued to buy back its own stock, purchasing 7.2 million shares at a total cost of $158 million.

The market for hotel assets is hot now, and Hilton soon may announce sales of some of its large hotels, including the venerable Palmer House in Chicago, company executives said in a conference call. The executives declined to identify the other properties but said Hilton had received a "high level of interest" from "many qualified buyers" and was in the process of finalizing agreements. The properties would all continue to operate under the Hilton brand.

Given strong lodging trends, Hilton is raising guidance for full-year 2005. It now expects revenue between $4.51 billion and $4.54 billion, up from the previous range of $4.50 billion to $4.53 billion. Full-year comparable owned revpar will likely rise 8% to 9%, vs. previous guidance for 7.5% and 8.5%. And the company foresees full-year EPS of 78 cents to 80 cents, ahead of the average Wall Street estimate for 75 cents.