WHITE PLAINS, N.Y. (
Starwood Hotels & Resorts
reported a healthy uptick in business travel bookings for the second quarter, and recovering occupancy rates will help drive future earnings. The hotel operator beat expectations and raised its forecast.
The operator of luxury hotel brands W, Le Meridien and St. Regis said early Thursday it booked earnings of $114 million, or 61 cents per diluted share, for the three months ended June 30. Excluding one-time items mainly related to property insurance proceeds and lower-than-expected restructuring charges, Starwood posted earnings per share of 35 cents, easily beating analysts' consensus call for profits of 26 cents.
The earnings beat was somewhat expected given the recent performance of other hoteliers.
Host Hotels & Resorts
, a lodging real estate investment trust, also beat quarterly expectations when it reported Wednesday, as did
Stifel Nicolaus analyst Rod Petrik told TheStreet he expected other lodging operators in the sector to beat analyst estimates and raise profit forecasts in the coming weeks as occupancy picked up the last few months.
Host, which owns and operates hotels under the Four Seasons, W and Ritz-Carlton brands, among others, said revPAR jumped 8.1% in its fiscal second quarter thanks to higher prices paid by business travelers.
Similarly, Marriott said last week it enjoyed the benefit of increased business travel bookings coupled with higher revPAR and daily room rates for the first time in nearly two years last quarter.
Both Host and Marriott raised their earnings guidance for 2010.
Starwood's report was "a classic beat and raise," Hudson Securities analyst Robert A. LaFleur told TheStreet. "There was some quibbling on whether they'd raised enough" he said, characterizing the chatter as simply a function of early cycle recovery. In other words, the broader economy didn't start showing signs of recovery until the second half of 2009, so year-over-year financial comparisons from the first half of 2010 were easy.
"We're seeing occupancies re-inflate to levels where
Starwood can start raising prices again," LaFleur said, "and that will drive earnings going forward."
Starwood lifted its full-year profit outlook as hotel occupancy and financial metrics continued to improve in the recent quarter. The company now expects to earn between 93 cents and $1.05 per share in 2010, compared with a previous outlook of 88 cents, while analysts predict it will book earnings per share of 95 cents. Starwood's current quarter outlook was not quite as bright, with guidance in a range between 15 and 19 cents, while analysts expect earnings at the top end of that range, or 19 cents per share.
LaFleur added that a big-picture look at financial reports from Marriot, Host and Starwood points to trends accelerating throughout the second quarter -- that industry fundamentals like revenue per available room, or revPAR, and profits got progressively better month-over-month.
"There was little evidence of people changing their travel patterns based on current rumblings in the economy," he said.
What's more telling, according to LaFleur, is that as corporate rate negotiation season gets underway, when companies negotiate for preferred rates for the following year, "everyone is telegraphing to buyers that rates have been low for a long time and will be up substantially for 2011. And they're getting very little pushback because companies know they've gotten a great deal for awhile now. They're more concerned with having rooms for their customers as opposed to getting a great deal."
That bodes well for lodging operators like Starwood. Its results last quarter were already buoyed by a healthy rebuilding of revPAR, which suffered the last few years as cash-strapped travelers were unwilling to pay for high-priced hotel rooms, even at luxury level establishments.
RevPAR for same-store hotels, or hotels open at least one year, soared 13.1% with the strongest growth in the firm's Asian properties. The best-performing brand was W Hotels with a 33.1% jump in revPAR in the second quarter.
Starwood said global revPAR should grow in the range of 7% to 9% for its company-owned hotels, compared with its previous forecast for growth between 5% and 8%.
"Average daily rates are back into positive territory as occupancy levels continue their steady ascent towards pre-crisis levels," said CEO Frits van Paasschen.
"While global lodging demand is solid, the economic outlook around the world remains unpredictable," he said, adding that "we will continue to plan for a range of potential scenarios, but each entails a focus on driving top-line growth with strong discipline in our cost base."
Shares of Starwood jumped 3.7% Thursday to close at $45.44. Host gained 2.7% to $13.95 and Marriott added 4.2%, closing the session at $32.04.
-- Reported by Miriam Marcus Reimer from New York.
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