Starwood 1Q net income falls, revenue improves

AP News
Posted: Apr 28, 2011 1:13 PM
Starwood 1Q net income falls, revenue improves

Costs tied to the earthquake in Japan pushed down Starwood Hotels & Resorts Worldwide Inc.'s first-quarter net income, but its adjusted earnings beat analysts' forecasts as healthy business travel and rising room rates boosted its revenue, the company said Thursday.

Starwood, which operates Sheraton, Westin and other hotel chains, also brightened its outlook for the full year.

The company forecast in February that higher prices for rooms would be critical to its success in 2011. And CEO Frits van Paasschen said during a conference call Thursday that room rates contributed as much to Starwood's quarterly growth in revenue per available room as occupancy rates _ the first time this has happened during the lodging industry's recovery so far.

Business and leisure travelers cut their trips during the recession as they tried to save money. In response, hotel operators reduced rates to keep their rooms booked, but as demand has improved they have begun to bring their rates back up.

Starwood now expects to earn $1.60 to $1.70 per share, up from $1.55 to $1.65 per share. Analysts on average expect $1.68 per share, according to FactSet.

For the period that ended March 31, Starwood reported net income of $28 million, or 14 cents per share, down from $30 million, or 16 cents per share, a year earlier.

Excluding $33 million in one-time items, including costs at a Tokyo hotel after the March 11 earthquake, Starwood said it earned 30 cents per share. Starwood has a minority interest in the Tokyo hotel.

Analysts on average forecast adjusted earnings of 25 cents per share, according to FactSet.

Revenue rose 9 percent to $1.3 billion, besting Wall Street's average $1.28 billion forecast.

Worldwide, the company's revenue per available room for hotels open at least a year climbed 10.4 percent. The metric rose 11.1 percent for its hotels in North America. For Starwood-branded hotels, the figure rose 11.9 percent. For those in North America, it climbed 9.6 percent.

Revenue per available room, or revpar, is a key gauge of a hotel operator's health. And comparing revenue at locations open at least a year offers an important window into consumer businesses' long-term financial health because it excludes the performance of locations that recently opened or closed.

Starwood, based in White Plains, N.Y., saw better results than a year earlier in all regions except Africa and the Middle East.

Van Paasschen said he is not worried about weakness in New York, a market often cited as a leading indicator, because one of the biggest problems it faces is a 7 percent rise in supply over the last year. He said it will take time for the New York market to absorb that supply, but Starwood is already seeing second-quarter occupancy building there.

Luxury properties posted some of the company's strongest gains in revenue per room, including the boutique Aloft hotels, where the figure rose 24.9 percent. In North America, for the Sheraton brand, the figure rose 9 percent.

Van Paasschen said group and short-stay bookings are still healthy, with the company "cautiously confident" about the year. He indicated that corporate group business surged 35 percent in the quarter, which is important because business travelers produce the majority of Starwood's revenue.

For the second quarter, the company predicts earnings between 42 cents and 46 cents per share. Analysts on average expect 45 cents per share, according to FactSet.

In a note to clients, JPMorgan analyst Joseph Greff said Starwood's full-year forecast leaves some room to be adjusted higher considering his favorable view of the lodging sector recovery and Starwood's global positioning in it. He maintained an "Overweight" rating.

Starwood's stock added 64 cents to $61.32 in midday trading.