PROMUS QUARTERLY EARNINGS DROP, STAY IN LINE WITH MAY FORECAST

Jerome Obermark

July 30, 1999
Promus Hotel Corp. reported lower second-quarter earnings due to unusual items, fewer hotel sales and slowing in the lodging industry.

The Memphis-based hotel franchising and management company announced May 25 that its quarterly earnings would be lower than expected.

The reasons given in May included softening market conditions,costs of changing some Doubletree hotels to achieve consistent four-star hotel standards, and poor performance of Red Lion hotels.

Net income for the second quarter of $45.7 million or diluted earnings per share of 56 cents were down from $52.2 million, or 59 cents per share diluted in the comparable quarter last year.

Unusual items for the second quarter of 1999 included a $1.3 million expense for retention and employment-related costs associated with management change following the acquisition of Doubletree , and losses of $400,000 on the sale of real estate. Without those items, earnings for the quarter would have been 58 cents.

Also, in second-quarter 1998, unusual items boosted last year's earnings. They included a $1.3 million gain on the sale of excess joint venture land, another $1.3 million gain on the prior sale of hotels, and gains of $1 million on the sale of securities.

Andrew Shipman, analyst for Morgan Keegan, said there were no real surprises in the second-quarter results.

The company's hotel brands showed mostly small gains in RevPAR for the second quarter, Shipman said. RevPAR, or revenue per available room, is a measure of performance that combines average room rate and average occupancy level.

The consensus among analysts seems to be that the lodging industry is headed for a soft landing as hotels started in recent years continue to come on stream, Shipman noted.

Norman P. Blake Jr., chairman, president and chief executive officer of Promus, said the second-quarter results were about flat with the exceptionally strong financial results the company experienced last year.

Blake also said in his prepared statement: "Our efforts to solidify the Doubletree brand's four-star positioning have affected Doubletree's short-term unit growth, which has slowed the growth of our management fee income and the related purchasing and service fee income.

"In addition, we experienced less in change of ownership and termination fees this year as significantly fewer real estate transactions have occurred this year compared to the last few years."

During the second quarter, Promus added 41 hotels with 5,138 rooms to its system. They included two Doubletree hotels, three Embassy Suites, 28 Hampton Inns, three Hampton Inn & Suites, four Homewood Suites and a 303-room Red Lion.

Also, during the second quarter Promus initiated termination of one Doubletree hotel, one Embassy Suite, two Hampton Inns and one non-Promus branded hotel. The five hotels no longer in the system have a combined 843 rooms.

Promus repurchased 4.3 million shares of its stock for about $109.6 million in second quarter.

Since August, 1998, Promus has repurchased about 9.3 million shares for a total cost of $276 million.

Promus's stock price dropped from $30.50 on May 24th to $25.125 at the close of trading May 25, the day it announced lower earnings expectations.

The stock price has not recovered, and probably won't until management proves it is in control of the situation, said Denise Wilder Warren, analyst with Merrill Lynch Global Securities.

Promus stock closed Tuesday at $28.125 up 31.25 cents. Volume was 116,100 shares.


Call Jerome Obermark at 529-2320 or send E-mail to obermark@gomemphis.com

(Copyright 1999)