Starwood Hotels & Resorts Worldwide reported third-quarter results Thursday that beat Wall Street's expectations, but the company's shares fell almost 5 percent as some investors opted to lock down profits gained during Starwood's recent rally.
Starwood's shares have risen about 20 percent since late August, outperforming a 13 percent rise in the Standard & Poor's 500, as the operator of Sheraton, St. Regis and W hotels benefited along with other lodging companies from a broadening consensus that business travel had recovered and leisure would follow.
While demand for hotel rooms has generated optimism about the economy's prospects for a more substantial recovery, individual lodging companies, like Starwood, are hitting a share price ceiling when they report their third-quarter results.
"People expected a good quarter and solid guidance and that's exactly what they're getting. It's not better than expected. At this point, it's expected," said hotels analyst William Marks of JMP Securities, who has a "market perform" rating on Starwood's shares.
Selling shares on the announcements of earnings is a typical move for hedge funds and shorter-term investors, Marks said.
Rivals Marriott International and Wyndham Worldwide followed a similar pattern to Starwood's when they announced their quarterly results earlier this month.
Starwood posted a third-quarter loss of $5 million, or 3 cents per share, from continuing operations, compared with a year-earlier profit of $36 million, or 20 cents per share.
Excluding a charge for a loss on the sale of a hotel, earnings from continuing operations rose to 25 cents per share, from 14 cents.
Analysts had expected earnings of 22 cents per share.
Starwood forecast 2010 profit per share of $1.09 to $1.11, up from its July projection of 93 cents to $1.05.
Analysts on average have been expecting full-year earnings of $1.08 per share, according to Thomson Reuters I/B/E/S.
The company confirmed its July forecast of a 7 to 9 percent increase in 2010 worldwide revPAR, or revenue per available room, a hotels industry metric used to compare financial performance across companies.
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But executives' concerns about the economy and acknowledgment that growth even in China will moderate in 2011 may have helped to push Starwood's shares down during its conference call, even as management focused investor attention on its Asian operations by holding the call from Beijing.
"Management took a more conservative stance on 2011," said Telsey Group analyst Chris Jones, whose rating on Starwood is under review.
"Questions about inflation here and austerity in Europe could put a damper on growth."
On its call with analysts and investors, the company said revPAR in China would moderate in 2011, although it would still be in the double-digits.
"Like any company, Starwood pointed to still-uncertain economic trends but that appears to be more than offset by growth in its global portfolio," Marks said.
Starwood says its operations in China and other developing markets represent its growth strategy.
"A lot of markets are looking to Asia for future growth," said Chief Executive Officer Frits van Paasschen on the call. "For us, that growth is a reality today."
"The stock is not cheap at all right now," said FBR Capital Markets analyst Patrick Scholes. "There's a bit of sell on the news." Scholes also rates Starwood "market perform."
Starwood shares were down 4.8 percent at $54.82 in afternoon trading on the New York Stock Exchange.
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