Starwood Hotels & Resorts Worldwide Inc. (HOT) has reported second-quarter adjusted earnings from continuing operations of 50 cents, which surpassed the Zacks Consensus Estimate of 46 cents and improved from the year-earlier earnings of 35 cents. The earnings also topped the company’s guidance range of 42 cents to 46 cents.
On a GAAP basis, Starwood recorded earnings of 77 cents per share from continuing operations compared with 42 cents in the year-ago quarter.
The quarter’s better-than-expected earnings were aided by an increase in demand. Revenues jumped 10.6% year over year to $1,426 million in the quarter, with revenue per available room witnessing considerable growth. The revenue also outperformed the Zacks Consensus Estimate of $1,406 million.
Inside the Headline Numbers
The company continued to experience occupancy gains on the back of economic recovery and a surge in demand for leisure as well as business travel. Average daily room rate also posted impressive results. Management fees, franchise fees and other income increased 13.6% year over year to $201 million.
System-wide RevPAR for same-store hotels increased 11.8% (8.2% in constant dollars) year over year all over the world. System-wide RevPAR for same-store hotels in North America rose 9.5% (8.7% in constant dollars). RevPAR climbed 14.4% (7.3% in constant dollars) in Asia-Pacific and 17.1% in Latin America (same in constant dollars).
Worldwide RevPAR for Starwood branded same-store owned hotels increased 18.5% (12.5% in constant dollars) from the prior-year period. RevPAR for Starwood branded same-store owned hotels in North America grew 10.8% (8.7% in constant dollars). Internationally, Starwood branded same-store owned hotel RevPAR increased 27.9% (17.2% in constant dollars).
Total vacation ownership revenues were up 9.9% year over year at $144 million. Originated contract sales of vacation ownership intervals increased 8.1%, primarily attributable to improved sales performance on existing owner channels and increased tour flow from new buyer preview packages.
The increase in RevPAR along with cost control resulted in improved margins. Worldwide same-store company-operated gross operating profit margin was up about 90 basis points (bps), driven by flat performance in the International segment and a 170-bp rise in the North American division. Performance at the International segment was hurt by the political unrest in the Middle East and North Africa as well as the earthquake followed by the tsunami in Japan.
Update on Hotel Rooms
During the quarter, Starwood signed 22 hotel management and franchise contracts with approximately 5,900 rooms. The company’s pipeline includes 350 hotels representing almost 90,000 rooms.
Financials
At quarter end, Starwood had cash and cash equivalents of $999.0 million (excluding $78 million of restricted cash) while its long-term debt was $2,188.0 million.
Outlook
Starwood expects its third quarter 2011 earnings within 36 cents to 40 cents, with RevPAR increasing 7% to 9% in constant dollars for same-store company operated hotels. Adjusted EBITDA is expected to range from $225 million to $235 million.
For full-year 2011, the company increased the earnings guidance in the range of $1.67–$1.77 (previously $1.60-$1.70) per share with an increase in RevPAR between 7% and 9% in constant dollars for same-store company operated hotels. Adjusted EBITDA is expected to range from $975 million to $1.0 billion.
Our Take
We believe Starwood Hotels is poised to benefit from a recovery in leisure as well as business travel. Pricing power is also returning to the hotel owners. Moreover, the company is experiencing a solid booking momentum. Starwood is aggressively expanding its footprint in the Asia-Pacific region, particularly in China and India. It is also spreading in Latin America, where demand is high and the pace of economic recovery is fast. Strong business trend is evident from its consecutive guidance increase for fiscal 2011. Before this, Starwood had raised its fiscal year guidance in April.
One of Starwood Hotels’ primary competitors, Marriott International Inc. (MAR) reported second quarter 2011 earnings of 37 cents per share, in line with our estimate. Marriott also reduced its guidance for fiscal 2011.
Starwood currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.
