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Starwood Excels in Earnings; Guides Higher

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Starwood Hotels & Resorts Worldwide Inc. reported first-quarter 2013 adjusted earnings from continuing operations of 76 cents per share, breezing past the Zacks Consensus Estimate of 53 cents by 43.4% and the year-ago level by 20.6%. Starwood’s margin expansion and share buyback activities pushed up the earnings for the quarter.

Revenues decreased 10.3% year over year to $1,539 million in the quarter due to reduction in the revenue at Starwood’s owned, leased and consolidated joint venture hotels as well as vacation ownership and residential businesses. The sale of 11 properties also adversely affected the quarterly revenues.

However, the company gained in terms of occupancy and RevPAR (Revenue per available room) and average daily rate on the back of a surge in demand for leisure as well as business travel. Starwood’s North American business was also solid during the first quarter. Total revenue has outperformed the Zacks Consensus Estimate of $1,488 million by 3.4%.

Inside the Headline Numbers

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

Hotel Business

Owned, Leased and Consolidated Joint Venture Hotels

Revenues at owned, leased and consolidated Joint Venture Hotels dropped 5.7% year over year to $379.0 million, following the sale of assets. However, worldwide RevPAR for Starwood branded same-store owned hotels grew 3.4%, driven by a 6.3% rise in the RevPAR in North America.

Management and Franchise Revenues

Management fees, franchise fees and other income climbed 8.0% year over year to $217.0 million in the quarter under review. During the first quarter, System-wide RevPAR for same-store hotels inched up 5.0% year over year all over the world while the same grew 3.4% internationally.

Region-wise, RevPAR in Africa and the Middle East registered maximum growth of 7.3% during the quarter, benefited from Starwood’s growing business in the Middle East region.

Vacation Ownership and Residential Sales and Services

Total revenue from vacation ownership and residential sales and services fell 39.9% to $309.0 million in the quarter as residential revenues were down 63.5% to $132 million. However, vacation ownership revenues were up 16.4% to $177 million led by higher revenue gains from the company’s resort business.


Worldwide same-store company-operated gross operating profit margin was up about 52 basis points (bps) during the first quarter with higher margin in North America. Starwood’s same-store company-operated gross operating profit margins in North America rose 110 bps with higher RevPAR and lower costs.

Update on Hotels

Starwood has entered into 26 hotel management and franchise agreements with nearly 6,200 rooms during the quarter under review. These consist of six refurbishment projects and 20 new constructions. The company also opened 18 new properties. On the other hand, as many as five properties exited from the company’s operation. At quarter-end, the company’s pipeline included over 400 hotels, consisting of almost 100,000 rooms.

During the quarter, Starwood offloaded three properties at the cost of $61 million. 

Shareholder Value Enhanced

Starwood bought back 1 million shares worth $56 million in the quarter. At the end of the quarter, nearly $624 million shares remained under the current share repurchase program.


Starwood is encouraged by the current economic improvement and is looking for new opportunities in the emerging markets, especially in the Middle East.

For second-quarter 2013, earnings are expected to be approximately 70 cents to 73 cents per share (including Bal Harbor project). The company anticipates RevPAR growth of 5% to 7% 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. Management fees, franchise fees and other income are expected to be within 8% and 10%.

Starwood has raised its guidance for earnings. For full-year 2013, the company now expects that its adjusted earnings per share will be between $2.75–$2.83 per share, up from the previous estimate of $2.59–$2.68. Earnings in 2013 are expected to be affected by asset sales.

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 is expected to be within 4% and 6% in constant dollars.

Our Take

Amid a sluggish economic environment, Starwood has gained from its international exposure, strong brand recognition and growing North American business. Starwood’s achievement of more than 20.6% growth in adjusted earnings in the reported quarter and its higher earnings guidance depicts the strength in its fundamentals. However, decline in the company’s sales remains a concern.

Starwood currently carries a Zacks Rank #3 (Hold). Another hotelier Wyndham Worldwide Corporation’s earnings in the first quarter beat the Zacks Consensus Estimate but its revenues were in line with the same. Some other hoteliers such as Marriott International, Inc. (MAR - Free Report) and Hyatt Hotels Corporation (H - Free Report) are going to report their first quarter earnings on Apr 30 and May 1, respectively.

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