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Hilton Doubles Net Income on Cost Cuts

A lower tax rate also contributes to gains. But a business-travel slump leads the hotel operator to trim forecasts.

October 24, 2002|Bonnie Harris | Times Staff Writer

Hilton Hotels Corp. said Wednesday cost cutting and a lower tax rate helped the hotel operator to more than double net income in the third quarter, despite declines in room rates and a stubborn business-travel slump.

The Beverly Hills firm said it earned $48 million, or 13 cents a share, up from $21 million, or 6 cents, a year ago. Revenue edged down 1% to $934 million.

Chief Executive Stephen Bollenbach said Hilton cut expenses by consolidating laundry facilities, paying down debt and centralizing 2,000 properties into one accounting system. Much of the cost cutting came after the Sept. 11 attacks, in part to avoid massive job cuts that plagued the tourism industry, he said.

Still, the third-largest U.S. hotel company lowered its forecast for the fourth quarter and 2003, citing the shrinking business-travel market and its inability to raise room prices. In the third quarter, overall room rates declined 3.6%.

"We've taken a conservative view for the balance of this year and into 2003," Bollenbach told analysts Wednesday. "Business is getting better, but the improvement is not as dramatic as I thought it would be at this time."

Corporate travel to cities such as New York, San Francisco, Phoenix and San Jose remains below 2000 levels, forcing Hilton and other hotel companies to offer rooms at lower rates to tourists and convention goers. That has allowed Hilton to increase its overall occupancy rate to 71.4%, up 3 percentage points over a year ago. The average daily room rate, however, fell from $125.63 to $121.06.

Hilton said it would earn "in the mid to high 50-cent range" for 2003, with revenue of about $4.1 billion. Fourth-quarter bookings are expected to increase 2% over the same period a year ago, but rates probably will remain flat for the year. Its outlook for 2003 fell short of the 60 cents per share estimated by Thomson First Call analysts.

The company, which runs the Hampton Inn and Embassy Suites brands, ranks behind Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc. in sales. Hilton plans to add at least 100 hotels and 12,000 rooms in 2003.

"It's an uncertain market that is difficult to project long term," said William Marks, an analyst with JMP Securities. "There's not much more [Hilton] can do."

Hilton said its earnings before interest, taxes, depreciation, amortization and noncash items was 9 cents, a penny less than analysts' projections.

Hilton shares fell 4 cents to $12.04 in New York Stock Exchange trading.

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