Hilton Hotels’ Earnings Drop 29%

Hilton Hotels Corp. reported on Monday a 29% drop in second-quarter net income as bargain-conscious vacationers replaced top-dollar business customers at its properties, which already were plagued by high insurance costs and reduced bookings because of the war in Iraq.

The Beverly Hills-based company said profit fell to $54 million, or 14 cents a share, from $76 million, or 20 cents, a year earlier.

Revenue fell 5% to $983 million from $1.035 billion.

The results were in line with Wall Street expectations. Analysts say the hotel industry still is recovering from the falloff after the 1990s’ boom in travel spending and hotel building.

The average daily room rate dropped 3.9% from last year’s, to $146.07 a night, as the company focused on keeping its hotels full despite cutting prices to attract guests.

“If there is one word to describe the hotel industry right now, it’s ‘difficult,’ ” said Chief Executive Stephen Bollenbach in a conference call with investors and analysts. “Difficult as in difficult to raise room rates.”

Revenue per available room, a key barometer of a hotel company’s performance, slid 6.9% during the quarter because of soft room rates, reduced food and beverage sales and higher costs of health-care and workers’ compensation insurance, the company said.

Hilton executives cut company guidance to $510 million to $525 million in operating income for the year, down from $530 million three months ago. They forecast per-share profit of 35 cents to 37 cents, on revenue of $3.85 billion.

Company executives said its second-quarter occupancy rate was 73.6%, which they said was “surprisingly high,” despite a decline of 2.4 percentage points from last year. But occupancy was driven by leisure customers paying $30 to $40 less per night per room than would be paid by business travelers.

“We don’t have enough people prepared to pay the highest rates in the hotels, so we sell to the marginally profitable but still profitable leisure segment,” Bollenbach said.

Hilton owns, manages or franchises more than 2,000 properties, including the ritzy Waldorf-Astoria in New York, the Hilton Hawaiian Village resort on Waikiki beach, and the brand names Doubletree and Embassy Suites. Its Hampton Inn chain, which caters to highway travelers, showed a greater resistance to the decline in business travel than Hilton’s more upscale locations.

“Major corporations and groups are just not interested in spending the way they did a few years ago,” said J. Cogan, an analyst for Banc of America Securities. “That should not surprise anyone.”

Hilton stock fell 8 cents to $14.93 on the New York Stock Exchange.