Leading hospitality company, Wyndham Worldwide Corporation’s (WYN), second-quarter adjusted earnings of $1.17 per share beat the Zacks Consensus Estimate of $1.13 by 3.5% which, we believe, was due to better-than-expected revenues.
Further, quarterly earnings were up 19.4% year over year led by strong performance by the company’s Lodging as well as Vacation Ownership businesses and share repurchase activities.
Net revenue grew 7.2% year over year to $1.34 billion in the quarter, beating the Zacks Consensus Estimate of $1.33 billion by 0.8%. Solid revenue growth in all the three operating segments aided quarterly sales.
Inside the Headline Numbers
Wyndham has three operating segments — Lodging, Vacation Exchange and Rentals and Vacation Ownership. All the segments have both domestic and international operations.
Wyndham’s Lodging segment revenues grew 8.0% year over year to $283.0 million in the quarter, driven by 8.8% rise in domestic revenue per available room (RevPAR).
Systemwide RevPAR grew 5.6% in the quarter. The increase reflects an 8.8% domestic increase, partially offset by 4.3% decline in international RevPAR, which primarily reflects unfavorable currency movements.
Adjusted EBITDA for the second quarter of 2014 was $87 million, a 12% increase from the prior-year quarter, primarily due to higher RevPAR.
Revenues from the Vacation Exchange and Rentals segment were up 7.0% year over year to $402.0 million. However, in constant currency, segment revenues increased 3%.
Vacation rental revenues went up 17.0% year over year to $217.0 million, while Exchange revenues remained stable year over year at $168 million. Excluding the impact of foreign currency and acquisitions, Vacation Rental revenues were up 6.0%, due to 4.9% increase in transaction volume and 1.2% rise in the average net price per vacation rental. Exchange revenues remained flat as 1.7% increase in average number of members was offset by 1.8% decline in exchange revenue per member.
Revenues from the Vacation Ownership segment rose 7.0% year over year to $673.0 million, driven by higher gross Vacation Ownership Interest (VOI) sales and a lower loan loss provision. Gross VOI sales were up 3% year over year to $496.0 million, gaining from 1.0% rise in tour flow and 1.1% increment in volume per guest along with a rise in tele-sales upgrades.
Adjusted EBITDA grew 15.0% year over year to $185 million during the quarter, buoyed by increased revenues.
Share Repurchase
Wyndham has bought back approximately 2.3 million shares for $170 million during the second quarter of 2014. From Jul 1 through Jul 23, 2014, the company repurchased an additional 0.5 million shares for $37 million. The company's remaining share repurchase authorization is worth $311 million as of Jul 23, 2014.
Guidance for 2014
Wyndham maintained its revenue guidance for 2014. The company expects revenues within $5.250–$5.350 billion. However, the company has raised its adjusted EBITDA guidance. Adjusted EBITDA is expected to be within $1.230–$1.245 billion, up from $1.215–$1.240 billion expected earlier.
The company has raised its earnings guidance for 2014. The company now anticipates adjusted earnings per share within the range of $4.34–$4.44, up from $4.23–$4.33. The Zacks Consensus Estimate for 2014 stands at $4.34.
Our Take
Overall, Wyndham’s strong developmental pipeline, significant international exposure and transition to a growing fee-for-service-based business are expected to spur growth. Shareholder-friendly steps, such as dividend hike, also inspire optimism about the stock. However, excessive exposure to the European economy and slowdown in business momentum owing to decline in consumer spending in North America may act as headwinds.
Wyndham currently has a Zacks Rank #2 (Buy). Some well-performing stocks in the same sector include Extended Stay America, Inc. (STAY), Starwood Hotels & Resorts Worldwide Inc. (HOT) and Hilton Worldwide Holdings Inc. (HLT). All these stocks have the same Zacks Rank as Wyndham.
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