Starwood Hotels Second-Quarter Profit Rises on Cost Cuts

Starwood Hotels & Resorts Worldwide Inc., owner of the luxury St. Regis and W brands, said second-quarter earnings climbed 12 percent, helped by cost cuts and sales of vacation units at the company’s South Florida resort.

Net income rose to $137 million, or 71 cents a share, from $122 million, or 62 cents, a year earlier, the Stamford, Connecticut-based company said today in a statement. The average estimate of 14 analysts was 73 cents a share, according to data compiled by Bloomberg.

A reduction in expenses for the quarter helped offset a decline in Starwood’s total revenue, according to Nikhil Bhalla, an analyst at FBR & Co. in Arlington, Virginia. The company also benefited from deals at the St. Regis Bal Harbour Resort in Miami Beach, which added $30 million of earnings before interest, taxes, depreciation and amortization.

“It’s not what I would consider a high-quality earnings beat,” Bhalla said in a telephone interview. “In North America they did quite well but, all in all, they beat expectations on one-time items such as sales at Bal Harbour and lower costs.”

The Bal Harbour Resort opened in January 2012.

Total revenue fell 3.5 percent from a year earlier to $1.56 billion, according to the statement. Costs dropped 4.7 percent to $1.31 billion, Starwood said.

Revenue per available room, an industry measure of occupancy and rates, climbed 3.9 percent worldwide after adjustment for currency fluctuations, and 5.1 percent in North America.

Starwood rose 4.6 percent to $66.24, the biggest increase since September 2012.

Summer ‘Wobble’

Starwood had an increase in reserves related to “unfavorable impact of foreign exchange,” according to the statement. The euro was the best-performing currency in the second quarter and gained 1.48 percent against the U.S. dollar, data compiled by Bloomberg show.

“For the third year in a row, the global economy entered summer with a wobble,” Chief Executive Officer Frits van Paasschen said on a conference call with investors. “But the global recovery is continuing its slow if not-so-steady pace, and tight supply in Europe is the order of the day with no new high-end hotels coming into the system. Therefore, despite the dismal situation in Europe, occupancy in the region was about 72 percent. We remain bullish in our view on high-end travel.”

In the U.S., Starwood is benefiting from rising demand for its brands, such as Sheraton and Westin, from individual business travelers and vacationers, said Patrick Scholes, an analyst at SunTrust Robinson Humphrey Inc. in New York.

Business Travelers

“They are well-positioned to take advantage of individual business travel -- their bread and butter -- which is doing very well, particularly in the U.S.,” Scholes, who has a hold rating on the stock, said before the report. “Leisure is also doing fairly well, particularly domestically.”

Excluding special items, income from continuing operations was $153 million in the second quarter, up from $138 million a year earlier. Special items included a $16 million charge primarily related to one-time income-tax costs from an asset sale, interest on deferred income from sales of vacation ownership units, and the resolution of certain tax positions.

Special items in the second quarter of 2012 totaled $9 million, the company said.

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