(Adds conference call information. Updates stock price.)
Starwood Hotels & Resorts Worldwide Inc.'s (HOT)
first-quarter net income tumbled 82% on shrinking revenue per
available room and a drop in timeshare sales.
But shares had gained nearly 2% by midday after the company
announced it intends to offer five-year senior notes through an
underwritten public offering. The net proceeds should reduce
outstanding borrowings under its revolving credit facility.
"We will be unrelenting in our efforts to pull cash out of our
business and improve our financial flexibility. We think of that as
a solid defense," said Frits van Paasschen, president and chief
executive officer, in an earnings call with analysts and investors.
"At the same time, long-term success will come from playing
offense, getting guest and customers to return again and again to
our hotels and resorts."
While the quarter's profit topped downbeat expectations, the
company projected second-quarter earnings of 14 cents to 20 cents.
Analysts' mean estimate, as surveyed by Thomson Reuters, was 23
cents.
The weak economy has squeezed the hotel industry for some time,
with timeshare businesses also under pressure. The outlook for 2009
is grim, despite efforts by hoteliers, including Starwood, to cut
costs. A recent swine flu outbreak could raise cancellations and
depress bookings.
The operator of hotels under the W Hotels, Westin, St. Regis and
Sheraton brands reported net income of $6 million, or 3 cents a
share, down from $32 million, or 17 cents a share, a year earlier.
Excluding restructuring and other charges, earnings from continuing
operations fell to 14 cents from 44 cents. Starwood in January
forecast 2 cents to 7 cents, below analysts' estimates at the
time.
Revenue decreased 24% to $1.12 billion. Analysts polled by
Thomson Reuters most recently were looking for $1.14 billion.
Revenue per available room in hotels owned for at least a year
fell 24%, including a bigger-than-expected 23% drop in North
America. New York and Hawaii alone dragged down revpar by almost
260 basis points.
"For the first time in a while, our traditional strengths have
for now, become significant headwinds," van Paasschen said in the
call. "For example, our global footprint left us vulnerable to a
strengthening dollar. Our luxury properties and our strong presence
in markets like New York and Hawaii have been disproportionately
hit by today's environment."
Vacation-ownership revenue fell 30% as contracted timeshare
sales dropped 50% on weaker demand. The average price per
vacation-ownership unit fell 25% to about $18,000.
The downturn has hurt credit ratings for the lodging industry,
with several hoteliers, including Starwood, falling into junk
territory in recent months.
The company declined to provide an update to its 2009 earnings
forecast, amid the significant uncertainty in the global economy.
In January, Starwood cut its view to $1.10. Analysts anticipated a
further reduction to 92 cents.
But there was a hint of optimism in the call: "Looking forward,
our experience in 2008 has taught us that it is difficult, and at
times counterproductive, to predict the future," van Paasschen
said. "What we can say now though is that the economy in general,
and our business in particular, are no longer in a free fall."
Shares of Starwood were up 1.9% at $21.11 in recent trading.
-By Tess Stynes and John Kell, Dow Jones Newswires;
201-938-2473; tess.stynes@dowjones.com
- Dawn Wotapka contributed to this report.