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Starwood Beats on Q4 Earnings, Misses on Revs


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Leading hotelier Starwood Hotels & Resorts Worldwide Inc. (HOT - Analyst Report) posted mixed fourth-quarter 2013 results. The company’s fourth-quarter adjusted earnings from continuing operations of 73 cents per share beat both the Zacks Consensus Estimate and year-ago quarter’s earnings of 70 cents by 4.3%. The company’s lower interest expenses backed the earnings growth.

Revenues decreased 1.8% year over year to $1.51 billion in the quarter and also missed the Zacks Consensus Estimate of $1.54 billion by nearly 2%. Quarterly revenues have declined mostly due to a dacrease in Vacation ownership and residential sales and services revenues.

Inside the Headline Numbers

Starwood earns a major portion of its revenues from its hotel business. Apart from this, the company derives revenues from its vacation ownership business.

Hotel Business

Owned, Leased and Consolidated Joint Venture Hotels

Revenues at owned, leased and consolidated joint venture hotels declined 0.5% year over year to $416.0 million due to the company’s asset sales. However, worldwide revenue per available room (RevPAR) for Starwood’s same-store owned hotels grew 5.8% in constant dollars, led by 5.7% and 5.9% RevPAR growth in North America and overseas market, respectively.

Management and Franchise Revenues

Management fees, franchise fees and other income increased 7.7% year over year to $265.0 million in the fourth quarter. Worldwide system-wide RevPAR for same-store hotels increased 5.3% year over year with strong RevPAR growth in North America.

System-wide RevPAR grew 4.4% internationally. Starwood’s Asia business is divided into two parts — Greater China and Rest of Asia. RevPAR growth in Rest of Asia was 8.0%, which was the highest within all the regions.

With the gradual economic recovery, North American lodging industry is steadily improving. The company has witnessed RevPAR growth of 6.1% in North America, up 90 basis points (bps) year over year and 30 bps sequentially.

Starwood’s luxury business performed well during the quarter gaining from higher demand worldwide. Among the company’s luxury brands, St. Regis/Luxury Collection recorded the highest RevPAR growth of 11.2%.

Vacation Ownership and Residential Sales and Services

Total revenue from vacation ownership and residential sales and services decreased 29.3% year over year to $176.0 million due to 70% fall in residential revenues and 0.7% decline in vacation ownership revenues.


Worldwide same-store company-operated gross operating profit margin was up 116 bps during the quarter, aided by higher margin gain in North America and international markets.

Update on Hotels

During the quarter, Starwood entered into 58 hotel management and franchise agreements that span over nearly 11,700 rooms. These consist of 12 brand-conversions and 46 new constructions projects. Apart from this, Starwood opened 23 properties in the fourth quarter.

On the other hand, the company divested 17 properties. Starwood recently completed the sale of its St. Regis Bal Harbour property. At quarter-end, nearly 450 hotels, consisting of almost 105,000 rooms were in the company’s development pipeline.

Shareholder Value Enhanced

During the fourth quarter, Starwood bought back 1.18 million shares worth $78.6 million. Currently, shares worth nearly $614 million remained under the existing share repurchase program.

During fourth-quarter, Starwood hiked its annual dividend by 8% from $1.25 per share to $1.35 per share. The new dividend was paid on Dec 27, 2013 to shareholders of record on Dec 13, 2013.

Full-Year 2013 Highlights

In full-year 2013, adjusted earnings per share were $2.99 ahead of the Zacks Consensus Estimate of $2.95 by 1.4% and the year-ago quarter’s earnings of $2.61 by 14.6%. In 2013, revenues decreased 3.3% year over year to $6.12 billion which was below the Zacks Consensus Estimate of $6.14 billion by 0.3%.


For first-quarter 2014, earnings are expected to be approximately 53 cents to 56 cents per share. The Zacks Consensus Estimate for first-quarter is 63 cents.

Starwood expects worldwide same-store company-operated RevPAR growth to be within 5%–7% (in constant dollars). RevPAR is expected to be 4% to 6% at same-store company-owned hotels worldwide. Management fees, franchise fees and other income are expected to be up 10%–12% in the first quarter.

For full-year 2014, the company now expects adjusted earnings per share in the range of $2.69–$2.78. The Zacks Consensus Estimate for full-year 2014 is $3.02.

RevPAR growth is expected to be 5%–7% at worldwide same-store company-operated hotels. RevPAR at same-store owned hotels will be 4%–6% in constant dollars. Worldwide same-store owned hotels’ margin is expected to go up 75 bps–125 bps.

Our Take

Although the Zacks Rank #3 (Hold) company’s earnings beat the Zacks Consensus Estimate gaining from lower interest expenses, the company’s revenue results were weak during the quarter. We remain concerned about the company’s declining residential business and increasing cost structure which may hurt its profitability, going ahead. Apart from this, weak Chinese business added to the woes.

However, Starwood is poised to benefit from the reviving economy and steady rise in the demand for hotels. Additionally, the hotelier’s strong developmental pipeline, significant international exposure, asset disposition strategy and shift to a fee-based business model is expected to bode well for future growth.

Another hotelier, Wyndham Worldwide Corp. (WYN - Analyst Report) recently posted mixed fourth-quarter 2013 results. While its fourth-quarter earnings missed the Zacks Consensus Estimate, revenues beat the same. Another major lodging company Marriott International, Inc. (MAR - Analyst Report) is slated to report fourth-quarter 2013 earnings on Feb 19, 2014.

Another company that is currently performing well in the hotel industry is Choice Hotels International Inc. (CHH - Snapshot Report) carrying a Zacks Rank #2 (Buy).

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