Hilton results exceed analyst forecast
Strong domestic demand for hotel rooms allowed Hilton Hotels Corp. to raise room rates and post 31.5% growth in net income in the third quarter, the company said Tuesday.
Hilton, in reporting rising revenue from its international hotels, said in a call with analysts that it was focusing on opening mid-range hotels in emerging markets such as India and China to ensure continued growth.
“Our prospects know no bounds,” said Matthew Hart, president and chief operating officer of the Beverly Hills-based company. “This worldwide growth strategy will become a large part of the overall Hilton story.”
In a deal applauded by Wall Street, the company acquired Hilton Group of Britain this year for $5.7 billion, allowing for the expansion of its Hilton, Doubletree and Embassy Suites brands internationally.
The acquisition helped double revenue to $2.2 billion in the quarter.
Hilton also has taken advantage of a strong real estate market to sell properties while retaining management contracts, which provides a more stable source of income, spokesman Marc Grossman said.
The company reported net income of $117 million, or 29 cents a share, up from $89 million, or 22 cents, a year earlier.
Hilton’s earnings exceeded analysts’ expectations by a penny, according to a survey by Thomson Financial.
The company operates 2,895 hotels and 496,504 rooms in 80 countries. And it is continuing to expand. Chief Executive Stephen Bollenbach said in a statement that Hilton had more hotels in development domestically than any other lodging company.
Revenue per available room, a key figure in measuring hotel performance, rose 9.8% from a year earlier as demand from business and leisure travelers remained strong, allowing the company to raise room rates.
“Rates are likely to continue to rise,” said John Staszak, an analyst at Argus Research in New York.
Jeff Randall, an analyst at A.G. Edwards & Sons in St. Louis, said he expected revenue per available room to keep increasing until early 2007, when it will surpass levels last seen before the Sept. 11 terrorist attacks depressed travel spending.
Hilton’s stock more than tripled in the five-year period that ended in September, dwarfing the 28% growth in the Standard & Poor’s 500 and outpacing rivals such as Starwood Hotels & Resorts Worldwide Inc. and Marriott International Inc.
But Hilton lags behind its competitors in the international market, Randall said. Marriott, for instance, entered China in 1991.
“There’s a learning curve to doing business over there,” he said.
Hilton said Tuesday that it expected corporate costs to increase in 2007 as it spends more on global branding. The company expects earnings per share of $1.27 in 2006 and revenue of about $8.14 billion.
Hilton shares traded at a record high of $29.79 on Tuesday but closed at $28.92, down 4 cents on the day.
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