Back to top

Image: Bigstock

Starwood (HOT) Misses Earnings & Revenue Estimates in Q2

Read MoreHide Full Article

Starwood Hotels & Resorts Worldwide Inc.’s second-quarter adjusted earnings of 71 cents per share lagged the Zacks Consensus Estimate of 73 cents by 2.7%. Earnings failed to surpass management’s projected range of 69 cents to 74 cents. Moreover, reported earnings declined 15.5% year over year mainly because of lower margins.

Revenues, on the other hand, increased a marginal 0.4% to $1.25 billion mostly due to a rise in other revenues from managed and franchised properties, and higher management fees, franchise fees and other income. These were offset by a decline in contribution from owned, leased and consolidated joint-venture hotels.

However, revenues missed the Zacks Consensus Estimate of $1.33 billion by 6.0%.

Notably, Starwood inked a definitive agreement to be acquired by Marriott International, Inc. (MAR - Free Report) , which will lead to the creation of the world's largest hotel company. The merger is expected to close shortly.

STARWOOD HOTELS Price, Consensus and EPS Surprise

STARWOOD HOTELS Price, Consensus and EPS Surprise | STARWOOD HOTELS Quote

Inside the Headline Numbers

Hotel Business

Owned, Leased and Consolidated Joint Venture Hotels

Revenues at owned, leased and consolidated joint venture hotels plummeted 12.3% year over year to $291 million. However, worldwide RevPAR for Starwood’s same-store owned hotels grew 4% at constant dollars on the back of a 7.2% increase in North America. Meanwhile, system-wide RevPAR dipped 0.9% internationally.

Management and Franchise Revenues

Management fees, franchise fees and other income increased 7.1% to $273 million. Worldwide system-wide RevPAR for same-store hotels went up 1.4% (in constant dollars) backed by 3.4% RevPAR growth in North America.

System-wide RevPAR declined 1.4% internationally, mainly due to RevPAR declines in Latin America, Greater China and Africa and the Middle East.

Starwood’s Asia business is divided into two parts – Greater China and Rest of Asia. RevPAR in Greater China fell 1.8%, while that in the Rest of Asia rose 2.9%. Europe also performed decently, with RevPAR growth of 1.1%.

In terms of brands, Starwood’s Aloft brand recorded the highest RevPAR growth of 3.6%, followed by Westin, which posted RevPAR growth of 3.2%.

Residential Sales and Services

Total revenue from residential sales and services rose 100% year over year to $2 million.

Other Revenues from Managed and Franchised Properties

Other revenues from managed and franchised properties increased 4.1% year over year to $680 million.

Margins and EBITDA Update

Worldwide same-store company-operated gross operating profit margin was down 20 basis points (bps), due to lower international gross operating profit margins. Adjusted EBITDA was $297 million, down 4.5% year over year.

Outlook

Though the Marriott transaction is expected to close in the coming weeks, Starwood has revealed its outlook for third and fourth-quarter 2016 separately, assuming that the company remains an independent company through Dec 31, 2016.

Third-Quarter 2016 Guidance

For the third quarter, earnings per share are estimated between 71 cents and 75 cents. The Zacks Consensus Estimate of 74 cents lies within the guided range.

Starwood expects worldwide same-store system-wide hotels RevPAR to grow 1–3% (at constant dollars). RevPAR at same-store company-owned hotels is expected to grow 4–6% at constant dollars. Management fees, franchise fees and other income are projected to rise roughly 5–7%.

Meanwhile, adjusted EBITDA is likely to be in the $270–$280 million range.

Fourth-Quarter 2016 Guidance

For the fourth quarter, earnings per share are expected to be 79–84 cents.

Meanwhile, Starwood expects worldwide same-store system-wide hotels RevPAR to grow 1–3% (at constant dollars). RevPAR at same-store company-owned hotels is expected to be down 1% to up 1%, at constant dollars. Management fees, franchise fees and other income are projected to rise roughly 2–4%.

Additionally, adjusted EBITDA is projected in the $285–$295 million range.

Zacks Rank & Stocks to Consider

Starwood presently has a Zacks Rank #4 (Sell). Better-ranked stocks in the sector include Intrawest Resorts Holdings, Inc. (SNOW - Free Report) and Marriott Vacations Worldwide Corp. (VAC - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Marriott International, Inc. (MAR) - free report >>

Marriott Vacations Worldwide Corporation (VAC) - free report >>

Snowflake Inc. (SNOW) - free report >>

Published in