Starwood Hotels & Resorts Worldwide Inc. reported fourth-quarter 2012 adjusted earnings from continuing operations of 70 cents, breezing past the Zacks Consensus Estimate by a nickel, but slightly below the year-ago level of 71 cents. In full-year 2012, earnings were $2.61 ahead of the Zacks Consensus Estimate of $2.56 and year-ago earnings of $1.93.
On a reported basis, earnings from continuing operations were 33 cents compared with 80 cents per share in the fourth quarter of 2011. In 2012, earnings were $2.39 versus $2.57 in the year-earlier period.
Revenues increased 0.1% year over year to $1,533 million in the quarter, with a modest rise in revenue per available room (RevPAR) in all regions. The revenue outperformed the Zacks Consensus Estimate of $1,475 million. In 2012, revenues surged 12.4% year over year to $6,321.0 million.
Inside the Headline Numbers
The company continued to gain in terms of occupancy on the back of a surge in demand for leisure as well as business travel.
Management and Franchise Revenues
During the fourth quarter, system-wide RevPAR for same-store hotels inched up 3.6% (4.1% in constant dollars) year over year, all over the world. International system-wide RevPAR for same-store hotels increased 1.5% (2.7% in constant dollars). Management fees, franchise fees and other income climbed up 5.1% year over year to $246.0 million in the quarter under review.
Owned, Leased and Consolidated Joint Venture Hotels
In the quarter, worldwide RevPAR for Starwood branded same-store owned hotels jumped 0.8% (1.2% in constant dollars) from the prior-year period. RevPAR for Starwood branded same-store owned hotels in North America nudged up 1.4% (0.6% in constant dollars).
Internationally, Starwood branded same-store owned hotel RevPAR climbed up 0.2% (1.7% in constant dollars). Revenue from this segment in the quarter dropped 4.8% year over year to $418.0 million, following the sale of assets.
Vacation Ownership and Residential Sales and Services
Total vacation ownership revenue was up 6.6% to $146 million in the quarter. Originated contract sales of vacation ownership intervals dropped 2.3%, primarily on decreased tour flow as well as average price. Total revenue from vacation ownership and residential sales and services fell 5.7% to $249.0 million in the quarter.
Worldwide same-store company-operated gross operating profit margin was up about 45 basis points (bps) during the fourth quarter. International gross operating profit margins for same-store company-operated properties nudged up 55 bps annually.
Update on Hotel Rooms
Starwood has entered into 40 hotel management and franchise agreements with nearly 8,400 rooms during the quarter under review. These consist of 10 refurbishment projects and 30 new constructions. The company also opened 17 new properties. As many as 11 properties with nearly 2,600 rooms exited from the company’s operation during the quarter. At quarter end, the company’s pipeline included over 400 hotels, consisting of almost 100,000 rooms.
At quarter end, Starwood had cash and cash equivalents of $428.0 million (including restricted cash amount of $123 million), while its long-term debt was $1,273.0 million.
Shareholder Value Enhanced
The company bought back 3.5 million shares worth $180 million in the quarter whereas it repurchased 6.3 million shares for $320 million in 2012. At the end of the quarter, nearly $180.0 million shares have remained under the current share repurchase authorization.
The hotelier has raised its annual cash dividend by 150% from the prior year to $1.25 per share, which was paid on Dec 28, 2012 to shareholders of record as of Dec 14.
The company is encouraged by the current economic improvement although it is concerned with the continuous political turmoil in a few regions.
For first-quarter 2013, earnings are expected to be approximately 51 cents to 54 cents per share (including Bal Harbor project). The company anticipates RevPAR growth of 4% to 6% in constant dollars at same-store company-operated hotels worldwide, while growth will likely be 3% to 5% at branded same-store company owned hotels worldwide. Management fees, franchise fees and other income are expected to be within 7% and 9%.
For full-year 2013, the company expects that its adjusted earnings per share will be between the range of $2.59–$2.68 per share.
RevPAR growth is expected between 5% and 7% in constant dollars for same-store company-operated hotels worldwide. RevPAR growth at branded same-store company-owned hotels worldwide are expected to be within 3% and 6% in constant dollars. Management fees, franchise fees and other income would rise by 9% to 11%. Effective tax rate will be nearly at 32%,
Given its significant expansion plan, international exposure, strong brand recognition and better earnings guidance, we believe the company is well positioned to benefit from business travelers to major North American destinations as well as international locations, going forward. Additionally, the hotelier’s continuous enhancement of shareholders’ value augurs well for the company.
However, we remain cautious on the stock based on a sluggish RevPAR growth in Europe, current economic condition and prevailing political risks in a few regions.
Starwood currently carries a Zacks Rank #2 (Buy). Another hotel company Wyndham Worldwide Corporation (WYN - Analyst Report) recently declared its fourth quarter 2012 adjusted earnings of 63 cents per share, ahead of the Zacks Consensus Estimate of 60 cents per share and up 34% year over year. Wyndham currently carries a Zacks Rank #2 (Buy).
Some other hotel companies worth a mention include Choice Hotels International Inc. (CHH - Snapshot Report) and The Marcus Corporation (MCS - Snapshot Report) . Both carry a Zacks Rank #1 (Strong Buy).