Log In | Register
NEW YORK — Deep cost-cutting helped Starwood Hotels & Resorts Inc. deliver first-quarter results above Wall Street's expectations on Thursday and the lodging company echoed comments by rivals that hotel demand is beginning to stabilize.
But its first-quarter earnings report wasn't pretty: It booked an 81 percent drop in profit, effectively withdrew its full-year profit guidance and forecast second-quarter earnings short of analysts' forecasts.
Like others in the sector, Starwood has been slashing expenses to contend with a sharp drop in business and leisure travel during the recession. A stronger dollar also hurt its quarterly earnings.
In a note to investors, Deutsche Bank analyst Chris Woronka compared Starwood's results with those of rivals like Marriott International Inc., which also beat first-quarter expectations "despite fairly ugly core operating results."
Barclays Capital analyst Felicia Hendrix noted that revenue per available room at Starwood's hotels came in "significantly below" what Wall Street expected. Revenue per available room, known as revpar, is a key gauge of hoteliers' performance because it takes into account both occupancy and room rates. In the first quarter, revpar at Starwood-branded hotels open at least one year tumbled 31.6 percent.
"The company's leverage to luxury, New York and the international marketplace are providing this drag," she noted.
Starwood's brands include the W, St. Regis, Westin and Sheraton chains.
Its timeshare business also suffered as consumers deferred purchasing big-ticket items. Revenue from vacation ownership and other residential sales slid 30.1 percent in the quarter. The average selling price of a unit dropped 24.6 percent to roughly $18,000, and the number of signed contracts tumbled 34.6 percent.
Despite the steep declines, Chief Executive Frits van Paasschen told investors during a conference call Thursday that Starwood's business is "no longer in a free fall."
The White Plains, N.Y.-based company's first-quarter profit slid to $6 million, or 3 cents per share from $32 million, or 17 cents per share, a year ago.
Excluding items such as severance costs, restructuring charges and losses on a hotel sale, earnings from continuing operations totaled 14 cents per share.
Revenue for the period ended March 31 dropped 24 percent to $1.12 billion.
Analysts polled by Thomson Reuters, who generally exclude one-time items, forecast earnings of 3 cents per share on revenue of $1.14 billion.
Starwood has shed roughly 900 employees since early 2008, closed nine sales centers, shuttered three call centers and halted development on some vacation ownership projects.
Starwood expects its cost-cutting program, which will be completed during the second quarter, to result in about $100 million of savings in 2010. The company noted that it won new terms this week on its credit facilities that allow it more leverage.
And on Thursday it said it plans a public offering of five-year senior notes.
Citing "uncertainty in the global economy," Starwood declined to forecast its earnings for the second half of 2009 — effectively pulling its previous full-year forecast of roughly $1.10 per share. Analysts expected 2009 earnings per share of 92 cents.
Starwood predicted second-quarter adjusted earnings of about 14 cents to 20 cents per share, missing analysts' consensus forecast of 23 cents per share.
Based on Starwood's experience with SARS, Chief Financial Officer Vasant Prabhu said swine flu outbreak under way now may hurt second-quarter results but should not have a long-term negative impact on the company.
Starwood shares gained 16 cents, or 0.8 percent, to close at $20.86 on Thursday.
___
AP Business Writer Michelle Chapman in New York contributed to this report.
