Recovery May Not Be So Quick, Hilton Hotels Says
Hilton Hotels Corp. warned Monday of a slower recovery this year than many on Wall Street had hoped after posting a 68% rise in fourth-quarter profit driven by a tax-related gain.
The Beverly Hills-based hotel operator said that it had turned the corner after three slow years but that business groups were still reluctant to confirm meeting plans, making for a “comparatively challenging” current first quarter, and it forecast full-year earnings below analyst expectations, pushing shares down 3%.
Hilton, which in addition to the Hilton brand also operates 2,000 Doubletree, Hampton Inn and Embassy Suites, said net income rose to $67 million, or 17 cents a share, from $40 million, or 11 cents, a year earlier.
Excluding one-time items worth 6 cents a share -- chiefly a reduction in provisions for income taxes -- earnings were 11 cents a share, hitting the target Wall Street consensus.
Revenue rose 3% to $989 million.
Fourth-quarter revenue per available room, a key measure of health in the lodging industry, fell 0.1% at Hilton-owned hotels, and the company forecast an increase of 3% to 4% in 2004, in line with its October outlook. For 2003, revenue per available room fell 2.9%.
“We believe the hotel business has finally turned the corner and that 2004 should provide more opportunities than challenges,” Chief Financial Officer Matthew Hart said, citing improved business travel.
Still, investors are concerned with the pace of the recovery, which they have been expecting for some time, analysts said.
Hilton sees full-year 2004 earnings per share in the mid-40-cent range. The Wall Street consensus is 47 cents.
On Monday, Hilton’s shares fell 49 cents to $16.39 on the New York Stock Exchange. Its stock rose 35% last year, and the Standard & Poor’s hotel index gained 50% on anticipation travelers would soon be checking in at hotels as the economy recovered. But improvement has lagged.
Banc of America Securities analyst J. Cogan said 2003 began strong but by the third quarter “earnings didn’t give investors any reason to bid stock prices higher.” And that held during the fourth quarter.
Climbing costs for worker insurance and health benefits, as well as property taxes, make it even more difficult for hotel companies to raise profits.
Expenses at hotels Hilton owns will rise about 2.5% to 3% this year, executives said, and Hart said revenue per available room would need to rise by about 2.5% in coming years to keep profit margins steady.
Hilton said business and international travel improved in the second half of the year at its New York and Washington hotels.
