Hilton Profit Climbs 14%, but Wall St. Unimpressed
Hilton Hotels Corp. on Wednesday reported a 14% jump in second-quarter profit, which the company said validated its move to split into two companies and merge its gambling business with part of Grand Casinos Inc.
But investors were not impressed, and the gambling and hotel giant’s shares fell 38 cents to close at $26.13 on the New York Stock Exchange.
“Our second-quarter and year-to-date results demonstrate the tremendous potential for each of these businesses as stand-alone companies once the split is completed at year-end,” Chief Executive Stephen Bollenbach said.
Beverly Hills-based Hilton, the third-largest U.S. hotel chain, earned $106 million, or 39 cents a diluted share, up from $93 million, or 34 cents, a year earlier. The profit was in line with the average estimate of 40 cents by analysts polled by First Call Corp.
The strong economy allowed Hilton to raise room rates at its big-city luxury hotels while its Wild Wild West casino, which opened a year ago, brought more gamblers into its Bally’s Park Place resort in Atlantic City, N.J.
“The Chicago, New York and San Francisco properties were very strong, and they were the drivers,” said Bear, Stearns & Co. analyst Jason Ader.
Earnings at the company’s lodging division rose 14% in the quarter to $184 million, while the gaming division saw profit rise 15% to $157 million.
In June, Hilton announced plans to buy Grand Casino’s three hotels in Mississippi for $650 million in stock and $550 million in debt, and merge the gaming businesses of those companies.
The deal, made after Hilton searched for a merger or another way to boost its stock, would create the nation’s third-largest gambling company and give Hilton a 35% share in the third-largest gambling market in the U.S.
Bollenbach said he believes Hilton’s stock is still undervalued and that the public does not see the acquisition as a major transaction.
When pressed by an analyst, Bollenbach said a stock buyback is always a possibility, although not imminent.
He added that more acquisitions on both the hotel and gaming sides are likely and that the company has an investment capacity of about $2 billion without jeopardizing its investment grade.
