Largest drop in 6 years
Starwood stock fell the most in six years after the company said full-year profit may drop more than analysts estimated as U.S. corporations and consumers cut spending.
“Business slowed down abruptly in May,” CEO Frits van Paasschen said on a conference call today. “We can reasonably expect that the economic downturn and its impact on our business will persist for the remainder of this year and into next year.”
America’s consumer-led economic slump has hurt demand for Starwood’s resorts in the U.S., Mexico and Italy, and is now hurting U.S. corporate travel, Chief Financial Officer Vasant Prabhu said on the call. Starwood sees slowing growth overseas as the spreading credit crisis hurts companies in London, Paris and Tokyo, and the residential real-estate “bubble” pops in Spain, the U.K. and Ireland, he said.
PROFITS DECLINED
Second-quarter net income decreased 28 percent to $105 million, or 56 cents a share, from $145 million or 67 cents, the White Plains, New York-based company said in a statement.
Revenue was little changed at $1.57 billion, Starwood said. Costs rose faster than revenue at hotels worldwide, including North America, squeezing profit margins.
“The fundamental hotel business came in below expectations,” Steven Kent, an analyst at Goldman Sachs Group Inc. in New York, said today in a client note.
REVPAR RISES
Revenue per available room, a measure of rates and occupancy known as Revpar, rose 3 percent in North America in the quarter, and increased 9.6 percent worldwide at properties Starwood has operated for at least a year. Excluding currency gains, global Revpar rose 4.8 percent, it said.
Timeshare sales fell 28 percent to $192 million. Demand for Hawaii vacation shares is slowing, Starwood said.
Van Paasschen raised Le Meridien and Sheraton room rates in Africa, Latin America and Asia to counter declines in the U.S., where declining housing values and soaring food and gasoline prices are sapping nonessential spending for both consumers and companies. Starwood is reducing restaurant hours, changing menus, freezing hiring and reviewing corporate benefits to control expenses, Van Paasschen said.
WORLDWIDE SLOWDOWN
Worldwide Revpar growth at hotels Starwood operates will slow to 6 percent to 8 percent this year, the company said.
Revpar growth at the company’s owned and operated North American hotels may slip to 2 percent to 3 percent this year, while earnings before interest, tax, depreciation and amortization at those properties will be little changed to down 3 percent compared with 2007, with a margin decline of as much as 1 percentage point, Starwood said.
Starwood, which manages and franchises about 900 hotels, including some it owns, has properties in more than 100 countries. It trails Marriott and Hilton Hotels Corp. in size. The company derives more than half of its management and franchise-fee income from outside the U.S.
Starwood agreed to sell two hotels for $123 million in the quarter. About $400 million from those sales and another three announced earlier should be received by October.
Starwood is still “moving away from owning hotels,” Van Paasschen said. “It’s no secret the dislocation in the capital markets is making it difficult for would-be buyers to secure financing, so the pace of asset sales is not what we would have liked.”
Source: Bloomberg
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