Earnings Growth Continues at Wyndham

Zacks

Wyndham Worldwide Corporation’s (WYN) second quarter 2012 adjusted earnings of 87 cents per share surpassed the Zacks Consensus Estimate of 85 cents and improved 36% year over year.

On a reported basis, Wyndham delivered earnings of 88 cents per share versus 67 cents in the prior-year quarter.

The increase in earnings was mainly driven by higher revenue per available room (RevPAR) in the Lodging business as well as strong operational performance of the Vacation Ownership business.

Net revenue climbed 4% year over year to $1,139 million in the reported quarter, reflecting growth across Wyndham’s Vacation Ownership and Hotel businesses, partially offset by a decline in Vacation Exchange and Rentals business, arising from unfavorable currency impact. However, reported revenue fell short of the Zacks Consensus Estimate of $1,157 million.

Inside the Headline Numbers

The company’s Lodging segment reported revenue of $233.0 million for the quarter, up 23% year over year, driven by a 5.0% rise in RevPAR, market share gain and higher licensing fees.

Revenues from the Vacation Exchange and Rentals segment dropped 3.6% year over year to $348.0 million. However, in constant currency, excluding the impact of acquisitions, segment revenues remained flat. Vacation rental revenues were $170.0 million, down 6% and Exchange revenues were $162.0 million, down 4% year over year.

Revenues from the Vacation Ownership segment at Wyndham rose 5.0% to $570 million, on the back of an increase in Vacation Ownership Interest sales.

Hotel Update

At the end of the quarter, Wyndham owned approximately 7,170 properties or 608,300 rooms. The development pipeline included over 900 hotels and around 113,900 rooms, of which 53% were newly constructed and 53% were in the international market.

Liquidity

Wyndham exited the quarter with cash and cash equivalents of approximately $285 million as compared with $142 million at the end of 2011. As of June 30, 2012, long-term debt was $2.3 billion versus $2.2 billion at December 31, 2011.

Share Repurchase

During the quarter, the company repurchased approximately 3.8 million shares of its common stock for an average price of $49.35 per share. For the next quarter, Wyndham has repurchased 1.1 million shares for $58 million. The company currently has $733 million remaining under its current share repurchase authorization.
 
Guidance

For full-year 2012, management continues to expect revenue in the range of $4.425–$4.6 million. However, Wyndham raised its earnings per share guidance range from $3.00–$3.15 to $3.10–$3.20 and also tightened its adjusted EBITDA outlook to $1.040–$1.055 billion from $1.030–$1.055 billion.

Our Take
 
Despite the challenging economic environment, Wyndham’s achievement of 36% growth in adjusted earnings for two consecutive quarters, better-than-expected earnings report and continued increase in earnings guidance depicts the strength in the company’s fundamentals.

Moreover, we expect the company to benefit from its shift to a more fee-for-service-based business, free cash flow generation, increased global travel demand and international expansion. Based on second quarter results and increased earnings guidance, we expect the estimates to go up in the coming days.

One of Wyndham’s competitors, Marriott International Inc. (MAR), reported second quarter 2012 earnings of 42 cents per share, in line with the Zacks Consensus Estimate. However, earnings in the reported quarter were 24% higher than the year-ago quarter adjusted earnings of 34 cents per share.

Wyndham, which also competes with Starwood Hotels & Resorts Worldwide Inc. (HOT), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are maintaining our long-term Neutral recommendation on the stock.

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