Starwood Hotels Posts Greater-Than-Expected Profit and 2007 Forecast

Starwood Hotels & Resorts, parent of chains including St. Regis, Westin and Sheraton, posted a greater-than-expected fourth-quarter profit on Thursday, helped by higher room rates.

Starwood also forecast profit for the first quarter and full year 2007 above Wall Street's expectations, saying it continues to expect increases in room revenue.

Coming a day after an upbeat outlook from Hilton Hotels , the statement signals that the hotel industry expects good times to continue.

"It's consistent with continued strength in lodging industry fundamentals," Susquehanna Financial Group analyst Robert LaFleur said. "There has been some concern about that

Income from continuing operations increased to $203 million, or 94 cents per share, from $159 million, or 70 cents per share. Excluding special items, income from continuing operations rose to $199 million, or 92 cents per share, from $162 million, or 71 cents per share.

Analysts polled by Thomson Financial had predicted quarterly earnings per share of 73 cents on revenue of $1.58 billion.

Revenue rose 3.7% to $1.57 billion.

The White Plains, New York-based company, along with most of the U.S. lodging industry, has been enjoying strong travel demand and limited growth in supply, allowing for steady increases in room rates. It has also been selling hotels and retaining management contracts, as well as franchising its brands -- a strategy that helps free up cash.

But the company bought back only about $34.2 million worth of shares during the quarter and kept its debt level low, leaving analysts to wonder what it was planning to do with the money.

"It suggests there could be catalysts ahead," CIBC World Markets analyst David Katz said, adding that an acquisition could be in the offing. "It also creates an opportunity for them to be potentially acquired."

Starwood had its board's permission to repurchase about $380 million worth of shares as of Dec. 31. It had net debt of $2.1 billion at Dec. 31 compared with $2.4 billion at the end
of the third quarter.

Meanwhile, management and franchise revenues increased 54.8% over the year before.

Revenue per available room, or revpar, a key industry measure of a chain's health, increased 9.1% from a year earlier at comparable hotels in North America and 11.4% worldwide.

Margins at comparable owned hotels worldwide and in North America improved 280 and 153 basis points, respectively.

Forecast for 2007

Looking ahead, Starwood said it expects revenue per available room at comparable owned hotels in North America to rise between 7% and 9% in 2007. It forecast full-year earnings per share of about $2.50 before special items, compared with analysts' expectation of $2.47.

For the first quarter, the company forecast a profit of 38 cents per share and revpar at comparable owned hotels in North America increasing 8% to 10%. That's higher than the 35 cents expected by analysts, according to Thomson Financial.

Starwood, based in White Plains, N.Y., held a conference call and webcast at 10:30 New York time to discuss results.