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Wyndham Hotels and Resorts Enjoys a Boost in Unit Revenue

Asit Sharma, The Motley Fool

Wyndham Hotels and Resorts' (NYSE: WH) first-quarter 2019 earnings reflect a substantial benefit from the company's purchase of La Quinta Holdings roughly one year ago. The results, released on April 30, also suggest that this quarter might have revealed a rather anemic earnings scenario had Wyndham not undertaken the acquisition of the 900 unit chain. Below, we'll dive into "raw" numbers and finer detail from Wyndham's initial quarter of 2019. Note that in the discussion that follows, all comparable numbers refer to the prior-year quarter.

Wyndham: The raw numbers

Metric Q1 2019 Q1 2018 Growth (YOY)
Revenue $468 million $302 million 55%
Net income $21 million $39 million (46.2%)
Diluted earnings per share $0.22 $0.40 (45%)

Data source: Wyndham Hotels and Resorts. YOY = year over year.   

What happened at Wyndham this quarter?

A businesswoman walks through a sparkling hotel lobby pulling a wheeled suitcase.

Image source: Getty Images.

  • Excluding the impact of the La Quinta acquisition and the divestiture of the Knights Inn budget chain (also a 2018 transaction), revenue was flat against the prior year.

  • RevPAR (revenue per available room) improved by 7% to $36.21. Removing the LaQuinta and Knights Inn transactions, RevPAR dipped by 2%. 

  • The average royalty rate charged to franchisees of Wyndham's brands rose 13 basis points to 4.59%; this improvement drops to two basis points when prior-year acquisitions and dispositions are factored in.

  • The number of properties in Wyndham's system grew 10% to 9,161 year over year, while the number of rooms expanded by 12% to 812,100. On an organic basis (again, factoring in acquisitions and dispositions), both property and room count increased by 3% versus Q1 2018.

  • At quarter-end, the company's backlog consisted of 1,400 hotels and 181,000 rooms, which represents an increase in rooms under development of 23% against the first quarter of 2018.

  • Approximately 25,000 of total pipeline rooms are slated for the La Quinta flag, and international construction represents approximately 54% of the company's total pipeline.

  • First-quarter net income was weighed down by ongoing costs related to the La Quinta acquisition and integration, as well as separation costs related to the June 1, 2018 spinoff of the company's vacation resort subsidiary, Wyndham Destinations.

  • Wyndham repurchased $44 million of its common stock during the quarter.

What management had to say

As I alluded to above, Wyndham's boost in unit revenue (i.e., its higher RevPAR during the quarter) is due solely to the addition of the midscale La Quinta brand. During the company's earnings conference call, CEO Geoff Ballotti underscored the importance of La Quinta to Wyndham's business model. He also noted a significant milestone reached last month: 

[A] key deliverable for us in the first quarter was finalizing the integration of La Quinta and being able to again raise our estimate on synergy savings. Our entire organization became immediately focused on integrating La Quinta the moment we acquired it less than a year ago. And we're thrilled to report that on April 3, we successfully completed the last major milestone of this integration by moving La Quinta off of its legacy property management and central reservation systems and onto our state-of-the-art distribution platform. The migration proceeded exactly as planned, and in what may be one of the largest same-day migrations in the history of the hospitality industry, La Quinta is now operating entirely on our cloud-based central reservation, property management, digital, loyalty, reporting and call center platforms.

With the full integration of La Quinta in Wyndham's reservation, management now has a better grasp on expected deal synergies. The company expects to realize annual cost synergies of $64 million to $70 million from the merger, and it anticipates that the savings will reach this annual run rate by the third quarter of 2019.

Looking forward

Wyndham left its forward 2019 financial guidance mostly unchanged on release of first-quarter earnings. The company still expects revenue to increase 13% to 16%, to between $2.11 billion and $2.16 billion. It also still anticipates adjusted net income of $301 million to $313 million, rooms growth of 2% to 4%, and organic RevPAR growth of 1% to 3%.

Management bumped up Wyndham's full-year adjusted diluted earnings per share (EPS) target range by $0.02, to $3.07 to $3.19. This adjustment is solely due to a lower share count from Wyndham's first-quarter share repurchases, though. Organic growth will need to accelerate for any meaningful change to the company's 2019 outlook in the coming quarters.

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Asit Sharma has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.