Hilton Hotels profit down

Hilton Hotels today reported lower-than-expected second-quarter profit due to renovations that caused disruptions at some of its properties and higher costs which drove down profit margins.

But the company, whose shares fell 1.4 per cent, narrowed its full year earnings forecast and raised the lower end of its outlook for revenue per available room, a key measure of health in the industry.

Hilton, which acquired the hotel assets of its British namesake, Hilton Group, in February, said net income fell to US$144 million ($236 million), or 35 cents a share, from US$202 million, or 49 cents a share, a year earlier.

Excluding items, the company posted a profit of 32 cents a share, which fell short of the average analyst estimate of 34 cents a share, as compiled by Reuters Estimates.

Revenue from higher-priced hotel rooms in the second quarter was offset by year-ago gains on hotel sales and tax.

"Street estimates did not fully account for the renovation disruptions that were disclosed," Bear Stearns analyst Joseph Greff wrote in a research note.

Hilton, which also operates hotels under the Hampton Inn and Embassy Suites brands, said quarterly revenue rose 87 per cent to $2.20 billion.

"The full year remains relatively unchanged from their previous guidance, which tells me the back half of the year should strengthen," Calyon Securities analyst Smedes Rose said.

Beverly Hills, California-based Hilton and other US hoteliers have benefited as strong demand, particularly among business travelers, and limited growth in supply have allowed them to raise room rates.

Second-quarter revenue per available room (revpar), a key performance measure for hotels, rose 9.3 per cent at comparable owned hotels worldwide. For North America comparable owned hotels, revpar increased 9.6 per cent.

But renovation at three of its major owned properties, including the landmark Waldorf-Astoria hotel in Manhattan, hurt revpar growth in the quarter, Hilton said. Excluding the impact of the disruption, revpar growth from North America comparable owned hotels would have been 12.6 per cent.

Comparable North America owned hotel margins in the quarter decreased 80 basis points to 30.2 per cent.

"The revenue side continues to improve but the costs are inflating," Deutsche Bank analyst Bill Lerner said. "And here is some evidence."

Lerner said labor, insurance and energy costs were increasing for hotels in general.

For the full year, Hilton said it expects revpar to increase between 9 per cent and 10 per cent at owned hotels in North America, up from a previous estimate of 8 to 10 per cent.

It raised its outlook for revpar growth for worldwide owned hotels to between 9 and 10 per cent, from 7 to 9 per cent.

For the full year, Hilton said it expects net earnings per share of between US$1.17 and US$1.21, compared with an earlier forecast of US$1.12 to US$1.19.

It tightened its forecast for recurring profit to US$1.08 to US$1.12 per share, from US$1.06 to US$1.13 earlier.

The company said it expects total capital spending in 2006 to be about US$860 million and add about 225 hotels to its system during the year.

Hilton's shares were off 33 cents to US$23.60 during morning trading on the New York Stock Exchange.

- REUTERS