Higher room rates, growth abroad and the continued return of business and leisure travelers around the world helped Starwood Hotels & Resorts Worldwide Inc.'s second-quarter net income rise 15 percent.
"Occupancies have now reached the point where we expect rates to rise further, and _ as you'd expect _ higher revenues means higher margins," CEO Frits van Paasschen said during a conference call with investors Thursday after the company reported its results.
Many people traveling for both business and leisure canceled or postponed trips to save money during the recession. In response, to keep rooms booked, hotel companies cut rates. Now that demand is returning, they have started bringing their rates back up.
Van Paasschen, whose company's brands include St. Regis, Sheraton and W, said rates are up 9 percent for newly booked business for 2012 and up 12 percent for periods after 2012. He also said Starwood is predicting strong rate increases in the U.S. and Europe for the remainder of the year and for 2012 corporate rate negotiations.
Starwood said its net income was $131 million, or 68 cents per share, for the period that ended June 30. That's compared with $114 million, or 61 cents per share, a year earlier.
Excluding a tax benefit and other one-time items, it earned 50 cents per share, while analysts on average expected 46 cents per share, according to FactSet.
Starwood's revenue rose 11 percent to $1.43 billion from $1.29 billion, narrowly topping Wall Street's forecast for $1.4 billion. Starwood also raised its full-year earnings forecast for a second time Thursday.
Its shares fell 35 cents to close at $55.36 Thursday. Over the last year, they've traded between $43.89 and $65.51.
Worldwide, the company's revenue per available room for hotels open at least a year climbed 11.8 percent. The metric rose 9.5 percent for its hotels in North America and 14.8 percent internationally. Comparing revenue at locations open at least a year offers an important window into consumer businesses' long-term financial health because it excludes locations that recently opened or closed.
Goldman Sachs analyst Steven Kent told clients in a note that Starwood's results, especially given weak performances in Africa and the Middle East where political unrest has dampened business, have brought confidence back to the sector.
Van Paasschen said Starwood's emphasis on the fastest-growing international markets is serving it well.
"It explains why tepid U.S. economic growth and persistent high unemployment have not dampened our own business momentum," he said.
For example, in China, there are almost 100 hotels under construction that the company will operate. Starwood already has 75 hotels there.
"In China, travel is growing at 15 percent and 20 percent a year, and there's only a fraction of the high-end hotels needed to serve this growth," van Paasschen said.
Starwood now predicts 2011 earnings of approximately $1.67 to $1.77 per share. In April, the White Plains, N.Y., company lifted its guidance to $1.60 to $1.70 per share from a range of $1.55 to $1.65 per share.
For the third quarter, Starwood foresees earnings of about 36 cents to 40 cents per share.
Analysts expect full-year earnings of $1.71 per share and third-quarter earnings of 37 cents per share.