Hilton this week reported lower than expected profits and its share price ticked up as investors expected improved profit margins in coming quarters.
Starwood, on the other hand, reported stronger than expected profits last week and saw its share price drop 6% as investors worried about its reduced forecasts.
Despite these short-term differences, both Starwood and Hilton are broadly moving in the same direction. Early summer saw buoyant confidence among investors that has been tempered more recently by worries over the US economy and geo-political stability.
What is clear, however, is just how strong the first half of this year has been for these companies from a topline growth perspective. Both reported revpar increases that were either just below or just above double digit.
For Hilton, the sting in the tail was a doubling in its cost base. This caused margins to fall by 80 basis points with the main impact coming from renovations, higher marketing and energy costs and hurricane insurance costs.
But the story told by management pleased investors, particularly on the international front. A sale of the Metropoles in the UK was promised for this autumn with a good price expected for these and other assets coming up for auction.
Also cheering backers was the promise to introduce Hilton’s limited service brands outside of North America.
Hilton co-chairman and CEO Steve Bollenbach said: “Strong demand is driving room rate growth in many of our most important markets, including New York, Hawaii, London and Chicago, a trend we see continuing due to limited new supply in urban centers and the ongoing rebound in the UK.”
Starwood had a far more healthy result when it came to margins, raising them 360 basis points in North America and 300 points worldwide thanks to a “breakout” in pricing power.
What concerned some investors, however, were forecasts, which while still bullish, were not quite as bullish as some had been expecting.
Net income at Starwood was $680m in the second quarter of 2006 compared to just $145m for the same quarter in 2005. Hilton, by contrast, saw its net income drop to $144m from $202m.