Starwood Hotels & Resorts Worldwide Inc. (HOT) has reported first-quarter 2012 adjusted earnings from continuing operations of 63 cents, which comprehensively surpassed the Zacks Consensus Estimate of 53 cents as well as the year-ago level of 30 cents.
On a reported basis, earnings from continuing operations were 65 cents compared to 15 cents in the first quarter of 2011.
Revenues spiked 32.4% year over year to $1,715 million in the quarter, with revenue per available room (RevPAR) witnessing strong growth. The revenue also outperformed the Zacks Consensus Estimate of $1,537.0 million. The company continued to experience occupancy gains on the back of a surge in demand for high-end leisure as well as international business travel.
Management and Franchise Revenues
System-wide RevPAR for same-store hotels increased 5.8% (6.4% in constant dollars) year over year all over the world. International system-wide RevPAR for same-store hotels increased 4.1% (5.2% in constant dollars). Management fees, franchise fees and other income increased 13.6% year over year to $201 million in the quarter under review.
Owned, Leased and Consolidated Joint Venture Hotels
Worldwide RevPAR for Starwood branded same-store owned hotels increased 4.5% (4.9% in constant dollars) from the prior-year period. RevPAR for Starwood branded same-store owned hotels in North America grew 3.6%.
Internationally, Starwood branded same-store-owned hotel RevPAR increased 5.8% (6.2% in constant dollars). However, total revenue in the quarter dropped 2.0% year over year to $402 million following the sale of five assets.
Vacation Ownership
Total vacation ownership revenues were up 3.4% year over year at $152.0 million. Originated contract sales of vacation ownership intervals nudged up 1.2%, primarily on increased tour flow from new buyers and improved marketing performance. Total revenue from Vacation ownership and residential sales and services increased significantly to $514.0 million in the quarter.
Update on Hotel Rooms
During the quarter, Starwood signed 32 hotel management and franchise contracts for approximately 9,000 rooms of which 10 are conversion projects, and opened 18 new properties. Five properties (approximately 1,000 rooms) left the system during the quarter. At quarter end, the company’s pipeline included over 365 hotels, representing almost 95,000 rooms.
Financials
At quarter end, Starwood had cash and cash equivalents of $657.0 million (excluding $178 million of restricted cash), while its long-term debt was $1,648.0 million.
Outlook
For second-quarter 2012, earnings are expected to be approximately 58 cents to 62 cents per share. The company anticipates RevPAR growth of 6% to 8% 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 adjusted earnings guidance to the range of $2.35-$2.46 (previously $2.22-$2.33) per share. RevPAR growth is expected between 6% and 8% in constant dollars for same-store company-operated hotels worldwide (up from the prior projection of 5% to7%). 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 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 and RevPAR at same-store company-owned hotels, 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 Neutral recommendation on the stock.
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