Starwood Hotels Beats Street, Europe Weighs; Stock Falls
Starwood Hotels & Resorts Worldwide posted a higher-than-expected profit on strong demand in North America, but its shares slid Thursday on concerns about softer growth in Europe.
The company, which franchises hotels under brands such as Sheraton, W, and Westin, cut the high end of its forecast for 2012 growth in revenue per available room, a key industry metric.
“Domestically, things are going quite well,” said Patrick Scholes, an analyst with FBR Capital Markets. “This year (Europe) appears to be a challenge.”
A business-led recovery has helped lift U.S. hotel occupancy rates and aided the industry, even as construction has slowed because of financing challenges.
“I have yet to talk to a corporate customer who has said he's traveling less than last year,” Starwood CEO Frits Van Paasschen told CNBC Thursday. “Companies are profitable, but the growth is outside the U.S., so they're looking to go wherever the growth is. A lot of them will travel more.”
He said occupancy in Starwood hotels is back to 2007 levels, but rates are not. Asia in general and China in particular have seen the highest growth rates for the company, with 25 percent of its rooms.
Van Paasschen also said luxury travel is on the increase, in particular “elite travelers” who have to be on the road for most of the year, and whose spending has tripled.
Economic troubles in Europe could damp the overall rebound, however. The CEO said the company started feeling the European slowdown in the third quarter. Europe makes up 12 percent of the company's rooms.
During the fourth quarter, Starwood's worldwide system revenue per available room rose 5.9 percent at hotels open at least a year. By region, North America and Latin America had the strongest revPAR showings, with increases of 7.7 percent and 9.6 percent, respectively.
Asia Pacific had a 6.6 percent gain, but revPAR in Europe was up just 0.2 percent.
“Europe basically was flat, and that dragged down the overall number,” Scholes said. Europe, which is grappling with a sovereign debt crisis, accounted for about 20 percent of Starwood earnings, he added.
David Loeb, an analyst with Robert W. Baird, wrote in a note to clients that Starwood's “outsized exposure to the region could present downside risk” to his firm's estimates this year.
Systemwide revPAR growth for the quarter trailed Baird's forecast of 8 percent.
Starwood Hotels now expects growth of 5 percent to 7 percent in worldwide revPAR for company-operated hotels open at least a year in constant dollars, compared with a prior view of 4 percent to 8 percent growth.
That metric multiplies occupancy rate by room rate.
Net income was $167 million, or 85 cents a diluted share, for the fourth quarter, compared with $339 million, or $1.78 a share, a year earlier, the company said on Thursday.
The latest quarter was bolstered by income from the St. Regis Bal Harbour project, a luxury Starwood resort in Florida that includes a hotel and residential towers. Year-earlier earnings were helped by a lawsuit settlement.
Excluding special items, the company said profit from continuing operations was 71 cents a share, up from 52 cents a year ago. Analysts expected 57 cents on average, according to Thomson Reuters I/B/E/S.
Revenue rose 14 percent to $1.53 billion, compared with $1.42 billion expected by analysts. Costs and expenses rose 25 percent.
Starwood Hotels forecast profit of 49 cents to 53 cents a share for the current quarter and $2.22 to $2.33 a share for the full year.
Analysts expected 36 cents for the first quarter and $2.25 for the year.