Hilton Hotels Corp. on Monday reported a 3% drop in fourth-quarter profit, even as the U.S. travel industry revives as more Americans take trips and hotel room rates rise.

Fourth-quarter earnings at the third-largest U.S. hotel chain declined to $65 million, or 16 cents a share, from $67 million, or 17 cents, a year earlier, meeting analysts expectations.

Hilton blamed the decline on a write-down of assets, a pre-tax loss on some hotel sales and the four-day lockout by San Francisco hotels of union workers in the fall. In addition, the year-earlier quarter featured a one-time tax gain.

Revenue at Hilton, which owns or manages more than 2,200 hotels under such brands as Hampton Inn, Doubletree and Embassy Suites, rose 7% to $1.05 billion.

The Beverly Hills-based company, known for its conservative earnings estimates, cut its profit projection for 2005 to just above 70 cents a share. It earlier had forecast earnings of between 70 and 75 cents a share. Analysts were expecting 77 cents.

That prompted Hilton shares to slide 2% on Monday, falling 45 cents to $22.25 on the New York Stock Exchange.

Analysts questioned why profit wasn't growing faster.

"We're very pleased to see the increase in cash flow and the revenue growth," said William Marks, analyst with JMP Securities in San Francisco. "But we are disappointed with the bottom-line growth. Why aren't their profits growing more quickly?"

For the most part though, analysts said the long-term outlook for Hilton was good.

For the quarter, revenue per available room - a key benchmark for the lodging industry - rose a healthy 8.3% at company-owned hotels, which Hilton attributed to an increase in business and group travel. In the fourth quarter a year earlier, it declined 1%.

In addition, Hilton's timeshare business in Orlando, Las Vegas and Hawaii continues to grow, with sales rising 45% in the quarter. Hilton said it might look to expand into a fourth timeshare market.

Nationwide the travel industry is in the midst of a recovery as 2004 was the best year for lodging firms since 2000, analysts said. Even more Americans are expected to travel this year.

"Pent up demand for travel and a shortage of first-class hotel rooms in most major cities should generate continued strong results," said Hilton Chief Executive Stephen F. Bollenbach.

For all of 2004, Hilton reported net income of $238 million, or 60 cents a share, up from $164 million, or 43 cents, in 2003. Revenue rose 9% to $4.1 billion last year.

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