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InterContinental sees times still tough, as profit falls 26%
By Barbara Kollmeyer, MarketWatch
Last Update: 4:25 AM ET Nov 10, 2009
MADRID (MarketWatch) -- InterContinental Hotels Group, the owner of the Holiday Inn hotels chain, on Tuesday reported a 26% fall in third-quarter profit, citing a "challenging" trading environment with room rates still under "considerable pressure."
Net profit attributable to shareholders for the group IHG fell to $67 million in the quarter, versus $91 million in the year-ago period, while revenue fell to $401 million, from $496 million a year ago.
The firm recorded exceptional operating costs of $44 million in the quarter, including a $21 million non-cash goodwill write-down and $18 million of severance costs.
Sales were down in all of its regions, with the biggest decline in the Europe, Middle East and Africa region, and a small gain in Asia Pacific.
Revenue per available room, an important gauge of performance known in the industry as RevPAR, fell 13.5% in the third quarter, with U.S. RevPAR falling 15.7%.
"The trading environment remains challenging," said Andrew Cosslett, chief executive of InterContinental Hotels. "We see signs of occupancy stabilising, but rate is still under considerable pressure across the board."
Hotel chains have been reducing expenses to cope with the impact of a recession that has cut into consumer and business travel globally. InterContinental said it would continue to focus on improving operational efficiency and remains on track for savings in regional and central cost of around $80 million in the full year 2009. The group reiterated it expects to save between $65 million and $70 million by the end of 2010, versus 2008.
InterContinental owns, manages, leases or franchises, through various subsidiaries, nearly 4,400 hotels and over 640,000 guest rooms in 100 countries and territories around the world. In the past several quarters, the company has been focused on revamping its Holiday Inn hotels and re-launching its brand, actions which Cosslett said are gaining pace.
"The partnership we enjoy with our owners has been a key factor in our system's resilience through this downturn and underpins our optimism for the future," said Cosslett. "This unique relationship combined with our global scale, diverse brand portfolio, fee based business model and powerful system positions us to lead the industry when the upturn comes."
Shares of InterContinental traded up 2.1% to 860 pence.
Simon French, analyst at Panmure, said it was encouraging to see InterContinental's RevPar down just 13.5%, against a 15.2% fall in the prior quarter.
In a note to investors, French noted that PricewaterhouseCoopers on Monday released its 2010 RevPar forecast for the U.S. market, predicting a -0.7% decline in RevPar.
"Given IHG's brands consistently outperform the market (e.g. by 1.2 percentage points in the third quarter) we think this supports our RevPar assumptions of flat year-on-year (growth) in 2010," he said.
"Over the medium-term we see material upside to our forecasts as IHG benefits from a global RevPar recovery, returns to profitability in the Americas managed division and restores its incentive fee in the large U.K. Holiday Inn portfolio," said French. The analyst has a buy rating on InterContinental with a 910 pence price target.
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