Starwood Q2: Occupancy Gains Stimulate Revenues

| About: Marriott International, (MAR)

Starwood Hotels & Resorts Worldwide Inc. (HOT) reported its second-quarter adjusted earnings from continuing operations of 35 cents, well ahead of the Zacks Consensus Estimate of 25 cents and the year-earlier quarter’s earnings of 22 cents. Including a benefit of $12 million from asset sales, the earnings were 42 cents per share compared with the year-ago level of 78 cents.

The quarter’s better-than-expected earnings were aided by an increase in demand for hotels. Revenues jumped significantly 10.5% year over year to $1,289 million in the quarter, with the revenue per available room witnessing a considerable hike in the quarter. Revenue in the quarter surpasses the Zacks Consensus Estimates of $1,241 million.

The company continued to experience occupancy gains on the back of a recovering economy and surging demand for leisure. Average daily room rate also posted impressive results. Management and franchise revenues went up 6.6% year over year to $177 million. Second-quarter GAAP net income was $114 million compared with $134 million in the year-ago quarter.

Inside the Headline Numbers

Worldwide system-wide RevPAR for same-store hotels increased 18.4% (16.4% in constant dollars) year over year. System-wide RevPAR for same-store hotels in North America rose 21.1% (17.6% in constant dollars). The re-launch of Sheraton drove terrific in North American market. There was strong growth in RevPAR in Asia-Pacific and Latin America, both of which shot up 31.7% (24.2% in constant dollars) and 29.7% (same in constant dollars), respectively.

Worldwide RevPAR for Starwood branded same-store owned hotels increased 18.4% (16.4% in constant dollars) from the prior-year period. RevPAR for Starwood branded same-store owned hotels in North America climbed 21.1% (17.6% in constant dollars). Internationally, Starwood branded same-store owned hotel RevPAR increased 14.3% (14.7% in constant dollars).

Total vacation ownership revenues also upped 5.6% year over year to $131.0 million. However, there was a 1.3% drop in originated contract sales of vacation ownership intervals, backed by the closure of fractional sales centers in 2009.

The increase in RevPAR also resulted in improved margins. Worldwide same-store company-operated gross operating profit margins were up about 150 basis points (bps), driven by a 180 bps improvement in International and a 140 bps rise in the North American division.

Update on Hotel Rooms

During the quarter, Starwood signed 25 hotel management and franchise contracts with approximately 6,400 rooms and opened 18 hotels and resorts with approximately 4,100 rooms.


Starwood expects its third quarter earnings per share before special items to be within 15 cents to 19 cents, with a RevPAR increase of 8% to 10% in constant dollars at same-store, company-operated hotels worldwide. For full-year 2010, the company expects earnings to remain in the range of 93 cents to $1.05 per share with an increase in RevPAR between 7% and 9% in constant dollars at same-store, company-operated hotels worldwide.

Our Take

We have an Outperform rating on Starwood Hotels as the company is poised to benefit from the reviving economy. Over half of its hotel properties are outside the U.S., an international exposure that not many of its peers can boast. Starwood is expanding its footprint in the Asia-Pacific region particularly China and India, where demand is high and the pace of economic recovery is fast.

Additionally, Starwood’s strong pipeline, fee-based business model and a less capital-intensive timeshare business are expected to augur well for its business.

One of Starwood Hotels primary competitors Marriott International Inc. (NYSE:MAR) reported its second-quarter 2010 earnings of 31 cents on July 14, ahead of the Zacks Consensus Estimate of 28 cents.

We currently have a short-term Buy rating on Starwood.