Starwood Hotels & Resorts Worldwide Inc. (HOT) has reported fourth-quarter 2011 adjusted earnings from continuing operations of 71 cents, which surpassed the Zacks Consensus Estimate of 57 cents as well as the year-ago level of 52 cents. In full-fiscal 2011, earnings were $1.93 versus $1.25 in the year-ago period.
On a reported basis, earnings from continuing operations were 80 cents compared to $1.08 in the fourth quarter of 2010. In full-fiscal 2011, earnings were $2.57 versus $1.63 in the year-ago period.
Revenues jumped 14.3% year over year to $1,531 million in the quarter, with revenue per available room witnessing a modest growth. The revenue also outperformed the Zacks Consensus Estimate of $1,397 million. In full-fiscal 2011, revenue grew 10.9% year over year to $5,624.0 million.
Inside the Headline Numbers
The company continued to experience occupancy gains on the back of a surge in demand for leisure as well as business travel.
Management and Franchise Revenues
System-wide RevPAR for same-store hotels increased 5.9% (5.8% in constant dollars) year over year all over the world. International system-wide REVPAR for same-store hotels increased 3.7% (3.5% in constant dollars). Management fees, franchise fees and other income increased 12.0% year over year to $234 million in the quarter under review.
Owned, Leased and Consolidated Joint Venture Hotels
Worldwide RevPAR for Starwood branded same-store owned hotels increased 5.7% (5.0% in constant dollars) from the prior-year period. RevPAR for Starwood branded same-store owned hotels in North America grew 5.5%.
Internationally, Starwood branded same-store owned hotel RevPAR increased 6.0% (4.7% in constant dollars). However, total revenue in the quarter dropped 4.4% year over year to $439 million in the quarter under review affected by six renovations and four asset sales.
Vacation Ownership
Total vacation ownership revenues were up 1.5% year over year at $137.0 million. Originated contract sales of vacation ownership intervals increased 6.2% primarily on increased tour flow from new buyers and improved sales and marketing performance. Total revenue from Vacation ownership and residential sales and services increased significantly to $264 million in the quarter.
Worldwide same-store company-operated gross operating profit margin was up about 110 basis points (bps). International gross operating profit margins for same-store company-operated properties nudged up 10 bps year over year. Margins were impacted by political unrest in the Middle East and North Africa.
Update on Hotel Rooms
During the quarter, Starwood signed 36 hotel management and franchise contracts for approximately 7,600 rooms and opened 28 hotels with approximately 7,900 rooms. Ten properties (representing approximately 1,600 rooms) left the system during the quarter. At quarter end, the company’s pipeline included over 350 hotels representing almost 90,000 rooms.
Financials
At quarter end, Starwood had cash and cash equivalents of $454.0 million (excluding $232 million of restricted cash) while its long-term debt was $2,194.0 million.
On November 2011, Starwood increased its annual dividend by 67% to 50 cents per share which was paid on December 30, 2011 to holders of record on December 15, 2011.
Outlook
For first-quarter 2012, earnings are expected to be approximately 49 cents to 53 cents per share. The company anticipates RevPAR growth of 5% to 7% in constant dollars at same-store company operated hotels worldwide while growth will likely be 4% to 6% at branded same-store company owned hotels worldwide.
For full-year 2012, the company increased its earnings guidance to the range of $2.22-$2.33 (previously $1.96-$2.25) per share. RevPAR growth is expected between 5% and 7% in constant dollars for same-store company operated hotels worldwide. REVPAR increases at branded same-store company owned hotels worldwide are expected between 4% and 6% in constant dollars.
Our Take
Starwood is a beneficiary of a recovery in leisure as well as business travel. We remain bullish on the stock given the company’s strong expansion plan compared to many of its peers, significant international exposure, portfolio restructuring and earnings power as well as returns to shareholders.
Like past quarters, Starwood raised its earnings guidance, reflecting its sound business model. For 2012, management remains hopeful on emerging markets.
Starwood, which competes with Marriott International Inc. (MAR), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are maintaining our long-term Outperform recommendation on the stock.
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