Intercontinental Hotels hit by dollar but retains bullish outlook

InterContinental Hotels earnings were hit by the strong US dollar in the first half of the year, but despite the recently lowered guidance from rivals Hilton and Marriott the Holiday Inn operator remains confident in the outlook for the rest of the year.

Reported revenues of $838m for the six months to 30 June were down 8% on the previous year's and short of analyst expectations, though underlying sales, which excludes the effect of disposals and exchange rates, rose 5% to $771m. This was all largely in line with market expectations.

Underlying global revenue per available room (revpar) grew 2% as room rates were lifted 1.4%, with the second quarter seeing revpar of 2.5% from growth in all regions, but at actual rates the stronger dollar cut group revpar to just 0.2% and negatively impacted reported profit by $4m.

Europe and China were most affected, with foreign exchange reducing revpar growth by around 4 percentage points in each region.

With growth principally driven from the Americas region and broadly stable across the other regions, group operating profits were up 10% at underlying level to $345m and up 2% on a reported basis.

Adjusted earnings per share (EPS) were up 2% to 89 cents and basic EPS down 44% to 87.7 cents, though with underlying EPS rising 11% to 89.4 cents the board increased the interim dividend by 9% to 30 cents.

Chief executive Richard Solomons highlighted signings in the year that included a second hotel for Kimpton outside the Americas, in Paris, as well as expanding the brand portfolio, which includes launching the latest phase of the Crowne Plaza 'refresh' in the US.

Following reduced guidance last week from Hilton Worldwide and Marriott International that had raised fears for Intercontinental, he was bullish on the outlook: "The fundamentals for our industry, and particularly for IHG as one of the largest branded players, remain compelling.

"This backdrop, combined with our winning strategy and the strength of our business model, will enable us to deliver sustainable growth into the future. Despite the uncertain environment in some markets, we remain confident in the outlook for the remainder of the year."

The room pipeline was expanded by roughly 35,000 to 222,000 rooms, with 90% in the company's ten priority markets and 45% under construction.

Analysts at Shore Capital said because the underlying rise in operating profit was said to be aided by the phasing of costs into the second half, this suggested that profit growth will be more modest in the final six months of the year.

"Overall, a solid update driven by North America and tight cost control, although on 19x forward earnings with the earnings accretion from balance sheet development effectively done if its difficult to see the catalyst for a re-rating unless global revpar growth accelerates," they said.

Shares in IHG were up 1.6% to 3,062p by 0915 BST on Tuesday, around their highest level since first-quarter results in early May.