Q4 2004 Hilton Hotels Corporation Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Ladies and gentlemen thank you for standing by and welcome to the Hilton Hotels Corporation fourth quarter earnings conference call. My name is Carlo and I will your your coordinator for today's presentation. At this time all participants are in a listen-only mode. We will be facilitating the question-and-answer session towards the end of today's conference. If at any time during this call you require assistance, feel free to press star followed by 0 and a coordinator will be happy to assist you. It is now my pleasure to turn the presentation over to your host for today's call Mr. Mark Grossman, Senior Vice President of Corporate Affairs for Hilton Hotels Corporation. Please proceed, sir.

MARK GROSSMAN, SENIOR VP OF CORPORATE AFFAIRS, HILTON HOTELS CORPORATION: Thank you, Carlo, and good morning, everybody or good afternoon if you're on the East Coast. Thanks for joining us today. I'm joined as usual by members of our senior management team.

And before we get started, just a little housekeeping, I want to remind everyone that the press release that we put out this morning and today's conference call contains forward-looking statements within the meaning of federal securities law, including statements concerning business strategies and their intended results, and similar statements concerning anticipated future events and expectations that are not historical facts. The forward-looking statements in the press release and in the call this morning are subject to numerous risks and uncertainties which could cause actual results to differ materially from those expressed in or implied by the statements herein.

Also I want to let everyone know that today's call is being webcast. To access that go on www.hiltonworldwide.com. Go to the Investor Relations link. And then click on quarterly conference calls. There will also be a replay of this call and that will be available until February 7th at 8:00 p.m. eastern time. The replay number is 888-286-8010, pass code number 75881787.

And we've also -- we'll have this all archived on our Investor Relations website as well. So with that, as we mentioned, last time around, we're doing something a little new and different this time and hopefully make the calls a little more efficient and we want to get to the things that are of interest to you. So, we're going to go right to your questions and I'll answer. So, Carlo, we're ready for the first question.

OPERATOR: Thank you sir. Ladies and gentlemen at this time if you wish to ask a question, please press star 1 on your touchtone telephone. Again, star 1 at this time for any questions. One moment, please. Sir, first question's from the line of Jay Cogan with Banc of America Securities.

JAY COGAN, ANALYST, BANC OF AMERICA SECURITIES: Hey, Mark, you can hear me okay?

MARK GROSSMAN: Yeah, Jay.

JAY COGAN: Okay. Sorry about that. I thought I lost you. It's probably is a good day for this new format.

If I can ask maybe a couple of quickies. First I was wondering if you guys can tell us what the San Francisco and the bedding expenses were maybe individually or in the aggregate for the quarter and kind of help us better understand what the flow through would have been otherwise in the quarter.

And then also, I was wondering if maybe you can talk a little bit, when it comes to your '05 guidance, I think obviously people thought the RevPAR numbers were pretty solid, but wondering what the flow through with the EBITDA margin expansion expectations are at the owned hotels for, you know, this current year.

BOB LA FORGIA, SENIOR VP, CFO, HILTON HOTELS CORPORATION: Hey, Jay, it's Bob. In terms of the fourth quarter, and -- and those one-time costs, about $6 million in total, Jay. 5 million for the linen costs, and roughly about a million for the strike-related costs. So, you know, if you take those costs out of the mix, our -- our margin would have been about 30 percent or up 150 basis points, and the flow-through would have been about -- a little over 1.6 times versus what we reported, which was about 1.1.

JAY COGAN: Got you. And so just to be clear, the bedding costs is just a one-time, it's gone, it's behind us?

BOB LA FORGIA: Yes.

MARK GROSSMAN: Yeah, and at this point now , 100% of the rooms that we own have our new bedding product.

JAY COGAN: Gotcha.

BOB LA FORGIA: And in terms of '05, Jay, the assumed -- in our budget, our -- our flow-through, for '05 for owned hotels is 1.5 times.

JAY COGAN: Okay. And do you have roughly what that would mean to the margins, you know, just off the top of your head?

BOB LA FORGIA: It's probably, you know, in the 100 -- 125 up range. Increase 125 basis points.

JAY COGAN: Gotcha. And is there any upside to that? I mean are things pretty well locked in? Do you -- that's -- that fully includes the new -- the new RevPAR guidance or --

BOB LA FORGIA: You know, there's a lot of assumptions that go into the preparation of the budget, Jay. I mean there's assumptions with regards to energy costs, and -- and wages, and things like that, but that's our best estimate this -- at this time.

JAY COGAN: Okay. Great. Thanks. I'll let others ask questions.

BOB LA FORGIA: Okay.

OPERATOR: And sir our next question's from the line of Joe Greff with Bear Stearns.

JOE GREFF, ANALYST, BEAR STEARNS: Hey, guys.

BOB LA FORGIA: Hi Joe.

JOE GREFF: I -- I know it's been sort of the last year or so standard operating procedure not talking about, you know, the following quarter or the present quarter. But I was just kind of hoping you can talk about maybe RevPAR in '05, you know, along the lines of quarter out and if you just want to talk about it real broadly before I ask some couple more questions.

MARK GROSSMAN: Cause I didn't understand the quick question --

JOE GREFF: If you can kind of go through how you see RevPAR and also, just kind of, margin improvement throughout the course of the year. Is it first-half weighted, is it second-half weighted; is it gradually throughout the course of the year from a margin perspective, and a RevPAR should be, I would imagine, you know, stronger in the first half than the back half?

MARK GROSSMAN: Yes, I mean Joe, we're just really not going to go into a quarter by quarter discussion. I mean, you know -- you know the way the seasonality works in the business, you know, the second and fourth quarters are typically the strongest, first and third the -- the weaker of the -- the year's, but you know, we're just going to -- going to stick to the -- the full year and the guidance that we put out this morning.

JOE GREFF: Okay. And then your '05 guidance does not incorporate any asset sales, any property sales, correct?

BOB LA FORGIA: That's correct.

JOE GREFF: Nor does it include any additional share repurchases other than just what you announced in the fourth quarter?

BOB LA FORGIA: That's correct. We haven't built in any assumptions with regard to either of those items.

JOE GREFF: Okay. Great. Thanks, guys.

MARK GROSSMAN: Thanks.

OPERATOR: And sir our next question is from the line of Mike Rietbrock with Citigroup New York.

MIKE RIETBROCK, ANALYST, CITIGROUP NEW YORK: Hey, guys.

MARK GROSSMAN: Hi Mike.

MIKE RIETBROCK: Hey. A couple of things. Can you give us an update where you stand in the process of asset sales,see -- either specifically or kind of what your -- your view of the overall market is, and -- number one?

Number two, could you give us an update on Chicago? It seems as if when we spoke offline earlier today, sort of the expectation of recovery there may be sliding out to 2006 a little bit, and if you could react to that. You know, what do you have on the books today for '05 for Chicago relative to what you had, you know, on at this time last year, and all those sorts of things. Then last question, what should we -- what should we be using for tax rate in '05?

STEVE BOLLENBACH, CO-CHAIRMAN, CEO, HILTON HOTELS CORPORATION: Mike, let me start -- this is Steve. And then we'll -- we'll have Dieter do the second one on Chicago and Bob will talk about the tax. In terms of the asset sales, you asked how's the market. The market is sensational.

MIKE RIETBROCK: Yes.

STEVE BOLLENBACH: And so we're going to take advantage of that if we can.

We've got some -- a lot of assets that we don't think that are core to our business, if we could sell, but of course we're only going to do that if we can take advantage of what is -- what we view is a very strong market. So we're going to be careful and we'll only sell these assets if we can get, you know, really high prices for them. I think that we'll have a pretty good execution during the year, but -- but I don't know, because we're setting high standards. We want high prices.

And so far, we've got tremendous interest, because …