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Starwood Hotels & Resorts Worldwide Q1 2010 Earnings Call Transcript

Starwood Hotels & Resorts Worldwide Q1 2010 Earnings Call Transcript

Starwood Hotels & Resorts Worldwide (HOT)

Q1 2010 Earnings Call

April 29, 2010 10:30 am ET


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Vasant Prabhu - Vice Chairman, Chief Financial Officer, Executive Vice President, Chief Financial Officer of Starwood Hotels & Resorts and Vice President of Starwood Hotels & Resorts

Frits van Paasschen - Chief Executive Officer, President and Director

Jason Koval - Vice President of Investor Relation


David Loeb - Robert W. Baird & Co. Incorporated

Janet Brashear - Sanford C. Bernstein & Co., Inc.

Joseph Greff - JP Morgan Chase & Co

Felicia Hendrix - Barclays Capital

Chris Woronka - Deutsche Bank AG

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Joshua Attie - Citigroup



Good morning, my name is Sylvia and I will be your conference operator today. At this time, I would like to welcome everyone to the Starwood Hotels First Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now turn the conference over to Mr. Jason Koval, Vice President of Investor Relations. Mr. Koval, you may begin your conference.

Jason Koval

Thank you, Sylvia, and good morning, everyone. Thanks for joining us for today’s First Quarter 2010 Earnings Call. Joining me today I have Frits van Paasschen, our CEO; and Vasant Prabhu, our CFO. We will be making statements on this call related to company plans, prospects and expectations that constitute forward-looking statements under the Safe Harbor provision of the Securities Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as Starwood or its management, believes, expects, anticipates, foresees, forecasts, estimates or other words or phrases of similar import. All such statements are based on our expectations as of today, and should not be relied upon as representing our expectations as of any subsequent date. Actual results might differ from our discussion today. I point you to our 10-K and other SEC filings available from the SEC or through our offices here and on our website at for some of the factors that could cause results to differ. With that, I’m pleased to turn the call over to Frits for his comments. Frits?

Frits van Paasschen

Thank you, Jay, and thanks, all, for joining us today for our first quarter call. Things certainly have changed since we last spoke in January. As you may recall, rather than make predictions, we were looking at a range of scenarios for 2010. Of the many scenarios we considered, what we see today is without a doubt the good case scenario. The pent-up demand that we hoped for is materializing. And as the economy picks up steam, more businesses are shifting their focus from cost cutting to growing the top line, which means resetting travel and expense budgets and shifting gears to get back on the road after 18 months of dormancy. This holds true as we look around the world. Emerging markets, or as we increasingly call them, rapidly growing markets are exhibiting a strong V-shaped recovery. And at the same time, the U.S. and Western Europe are proving robust. But let me repeat, we are not in the business of forecasting the global economy. Visibility in our business remains very limited making it challenging to forecast one quarter out, let alone the balance of the year. We call it as we see it in real time and we plan for an array of scenarios. This approach served us well in navigating through 2009.

So despite all the good news and the better than expected REVPAR, we still see reasons to consider less sanguine scenarios. To borrow a phrase from Warren Buffett, we should be fearful when others are greedy. We want to avoid the mistake of taking actions born out newfound optimism. After all, the global economy remains volatile. China risks overheating. Greece and the eurozone are grappling with major fiscal and philosophical issues, not to mention the mountain of U.S. government debt. Finally, volcanoes in Iceland, red shirts in Thailand and unrest in Mexico remind us that our industry is susceptible to sudden changes from many unforeseen corners.

In an uncertain world, we remain committed to financial discipline of flexibility. This means austerity in procurement, on-property costs and corporate SG&A. We simply refuse to give back the cost savings that we worked so hard to achieve. If good times continue, this will drive better flow-throughs than in prior cycles. In fact, thanks to lower costs at equivalent REVPAR levels, our EBITDA would be at least $100 million higher than before 2009.

Our financial discipline also applies to our balance sheet. We'll continue to de-risk and delever it, thanks to operating cash flow, securitizations, proceeds from asset sales, such as the W Court in Tuscany and the long-awaited IRS tax refund.

So with that as a backdrop, I'll cover four topics today: First, a quick review of our first quarter results and implications for the balance of the year; second, some thoughts from a recent 10-day trip to India; third, a few perspectives on the bounce back of luxury travel; and fourth, a review of the five essentials of the journey, the touchstone of Starwood’s direction.

So let me start with some highlights from the first quarter and a range of expectations for the balance of the year.

We were able to beat EBITDA expectations by roughly $30 million and EPS by $0.13, owing to strong REVPAR growth. REVPAR was powered by better than expected occupancy, thanks to strong transient demand and encouragingly, in the quarter for the quarter group bookings. By the way, this was consistent with our good case scenario, which anticipated that as business environment improved, companies would scramble to set up pending meetings and events. Our good case scenario also envisioned luxury leading the charge, and this is exactly what happened. Luxury occupancy was up by almost 20% in the quarter.

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