Updated from 8:32 a.m. EST
Starwood Hotels & Resorts
shares rose after the hotel company beat fourth-quarter earnings expectations and offered a bullish 2005 forecast.
Starwood announced net income of $100 million, or 46 cents a share, up 14.9% from the $87 million, or 42 cents a share, it earned a year earlier. Business was strong throughout Starwood's hotels, and room rates rose significantly in a sign the cyclical hotel recovery is barreling along.
Excluding discontinued operations, Starwood said it earned 51 cents a share, vs. 42 cents a share the year before. Excluding both discontinued operations and one-time items, Starwood's EPS was 57 cents, vs. 42 cents a year earlier. It wasn't clear which of these two numbers is comparable to the average analyst consensus of 45 cents a share from Thomson First Call. Either way, the company handily beat expectations.
In reaction, shares gained $1.35, or 2.3%, to $59.65.
Total revenue, including all of Starwood's hotels and its time-share business, came in at $1.44 billion, up 20.5% from $1.20 billion in the year-ago period, and better than the $1.31 billion expected by Wall Street. Worldwide revenue at Starwood-owned hotels was $867 million, up 9.7% from a year earlier, while time-share revenue jumped 75.9% to $197 million.
Revenue per available room, an important metric in the lodging industry also known as revpar, increased 11.1% worldwide at hotels the company owned at least a year, helped by a 6.9% increase in the average daily room rate. Revpar at North American hotels the company owned a year ago increased 11%, and the average daily room rate rose 8%.
Starwood, whose brands include St. Regis, The Luxury Collection, Sheraton, Westin, and W, said higher room rates were responsible for more than 70% of the revpar increases. Room rate increases typically go straight to the bottom line, because expenses tend not to rise in tandem. Starwood said margins at its North American owned hotels improved about 3.8 percentage points from a year before.
Revpar growth was particularly strong at company-owned hotels in big U.S. cities, such as New York, Boston, Chicago, Los Angeles and Washington, D.C. Large urban markets have been booming, helped by a recent comeback in business travel.
Starwood's strength in the quarter was partly due to its concentration in markets like New York and Boston, according to Mike Rietbrock, a Citigroup Smith Barney analyst. "It also seems like Starwood is taking market share," he wrote, in a research note. (Citigroup Smith Barney does and seeks to do business with companies covered in its research reports.)
"I'm very pleased with our industry-leading top- and bottom-line performance," said Steven Heyer, the company's new chief executive. "Clearly the top line was helped in part by our well-located urban concentration of owned assets, but it is just as clear that we are enjoying significant share gains vs. our competitive set, beyond that explained by location, owing to the resurgence and effectiveness of our brands."
Looking ahead, Starwood expects first-quarter revpar at North American hotels to increase 6% to 8%. Based on that forecast, the company believes EPS will be 30 cents, above the analyst forecast for 26 cents. First-quarter adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, is likely to be about $275 million, an increase of 24% over the same period in 2004.
For all of 2005, Starwood forecasts a revpar gain of 8% to 10% at its North American properties. It sees total revenue of $5.90 billion, above the First Call consensus for $5.46 billion, and EPS of $2, vs. the average Wall Street estimate of $1.92.
New accounting rules mandate that companies begin expensing options by July. In a conference call, Starwood executives said the company isn't offering estimates of the impact this will have on earnings because it has yet to select a model for valuing options. Starwood likely will offer specific guidance on options expenses when it reports its first quarter.
Earlier this week,
said fourth-quarter profit slipped 3% to $65 million, or 16 cents a share, as the company incurred charges from property sales and a new accounting rule related to convertible debt.
Some on Wall Street were dissatisfied with Hilton's margins and what was seen as a conservative forecast. Starwood's results, however, could put the steam back in hotel stocks.
"The group has been mushy since Hilton reported EPS that were restrained by only about 125 basis points of margin expansion," wrote Harry Curtis, a J.P. Morgan analyst, in a note reacting to Starwood's earnings. "We think Starwood's leverage more accurately reflects revpar and EBITDA trends in the full-service hotel industry, which should be encouraging to investors." (J.P. Morgan does and seeks to do business with companies covered in its research reports.)
Earlier this week, Hilton Hotels said fourth-quarter profit slipped 3% to $65 million, or 16 cents a share, as the company incurred charges from property sales and a new accounting rule related to convertible debt.
reports fourth-quarter results before the bell next Tuesday. On average, analysts expect Marriott to earn 75 cents a share on $3.10 billion in revenue.