Starwood Hotels & Resorts Worldwide Inc.
) posted mixed second quarter 2014 results and increased its
earnings guidance for 2014. Earnings from continuing operations of
77 cents per share beat the Zacks Consensus Estimate of 76 cents by
a penny. Earnings were higher than management's expected range of
72 cents to 76 cents. However, earnings declined 2.5% year over
year, owing to lower revenues and higher selling, general and
Starwood Hotels & Resorts Worldwide, Inc -
Earnings Surprise | FindTheBest
Revenues decreased 1.5% year over year to $1.54 billion in the
quarter, mostly due to a decline in vacation ownership and
residential sales and services revenues. Revenues from residential
sales mainly dropped due to the sale of The St. Regis Bal Harbour
residential project in Jan 2014 and Aloft Tucson University in
Tucson, AZ. Also, the top line missed the Zacks Consensus Estimate
of $1.55 billion by a meager 0.8%.
Inside the Headline Numbers
Starwood earns a major portion of its revenues from its hotel
business. Apart from this, the company derives revenues from its
vacation ownership business.
Owned, Leased and Consolidated Joint Venture
Revenues at owned, leased and consolidated joint venture hotels
declined 1.2% year over year to $414.0 million. However, worldwide
RevPAR for Starwood's same-store owned hotels grew 6.0% in constant
dollars, led by 4.1% and 7.4% RevPAR growth in North America and
Management and Franchise Revenues
Management fees, franchise fees and other income increased 10.2%
year over year to $260.0 million in the second quarter, above
the higher end of management's expectation of 8.0% to 10.0%
year-over-year increase. Worldwide system-wide RevPAR for
same-store hotels increased 5.3% year over year, owing to RevPAR
growth in North America.
The company witnessed RevPAR growth of 6.3% in North America, up
110 basis points (bps) year over year.
System-wide RevPAR grew 4.1% internationally. Starwood's Asia
business is divided into two parts - Greater China and Rest of
Asia. RevPAR growth in Greater China was 11.1%, the highest among
all the regions.
In terms of brands, Starwood's Aloft recorded the highest RevPAR
growth of 12.6% followed by W Hotels that posted RevPar growth of
Vacation Ownership and Residential Sales and
Total revenue from vacation ownership and residential sales and
services declined 28.5% year over year to $171.0 million due to an
86.2% fall in residential revenues, marginally offset by a 0.6%
increase in vacation ownership revenues.
Other Revenues from Managed and Franchised
Other revenues from managed and franchised properties were up 3.9%
year over year to $694.0 million in the reported quarter.
Margins and EBITDA Update
Worldwide same-store company-operated gross operating profit margin
was up 87 bps during the quarter, aided by higher margins in North
America and international markets. Adjusted EBITDA was $324.0
million, down 2.7% year over year. However, it was above
management's expectation of $310.0 million to $320.0 million.
Update on Hotels
During the quarter, Starwood entered into 45 hotel management and
franchise agreements that span nearly 8,500 rooms. These agreements
include 8 brand-conversions and 37 new constructions projects.
Apart from this, Starwood opened 19 new hotels and resorts in the
On the other hand, the company divested six properties. During the
quarter, the company completed the sale of the Aloft Tucson
University in Tucson, AZ. As of Jun 30, 2014, nearly 450
hotels, consisting of almost 105,000 rooms, constituted the
company's development pipeline.
2014 Earnings Guidance Upped
The company increased its earnings guidance for 2014 owing to
better-than-expected results. It expects adjusted earnings per
share in the range of $2.78 to $2.85 compared to its previous
expectation of $2.76-$2.83. The Zacks Consensus Estimate of $2.83
for full-year 2014 falls within the current guidance range.
RevPAR growth is expected to be 5%-7% at worldwide same-store
company-operated hotels. RevPAR growth at same-store owned hotels
is likely to be 4%-6% in constant dollars. Management fees,
franchise fees and other income is expected to increase in the
range of 8.0% to 10.0%. Worldwide same-store owned hotels margin is
expected to go up 75 bps-125 bps.
Guidance for Third Quarter 2014
For third-quarter 2014, earnings are expected to be approximately
62 cents to 65 cents per share. The Zacks Consensus Estimate for
the second quarter stands at 67 cents.
Starwood expects worldwide same-store company-operated and
same-store company owned hotels RevPAR growth to be within
5.0%-7.0% (in constant dollars). Management fees, franchise fees
and other income are expected to be up 2.0%-4.0% in the third
It seems that Starwood is poised to benefit from the economic
revival and a steady rise in the demand for hotels. Moreover, the
growth in demand for hotels is expected to exceed supply growth in
2014. This leaves scope for increasing room rate, going forward and
thereby improving RevPar.
Additionally, the hotelier's strong developmental pipeline,
significant international exposure, asset disposition strategy and
shift to a fee-based business model are expected to bode well for
future growth. However, we remain concerned about the company's
declining residential business, which could continue to hurt the
top line in the near term. Also, the lingering political
uncertainty in Europe, Latin America and in some parts of Africa
and an economic slowdown in China are expected to remain a concern
for the company.
Starwood presently has a Zacks Rank #2 (Buy). Investors interested
in the hotel industry may consider stocks like Home Inns &
Hotels Management Inc. (
), The Marcus Corporation (
) and Choice Hotels International Inc. (
). While Home Inns & Hotels Management and The Marcus
Corporation sport a Zacks Rank #1 (Strong Buy), Choice Hotels
International carries a Zacks Rank #2.
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