Wyndham Worldwide Corporation’s (WYN) first quarter 2011 adjusted earnings of 44 cents per share outpaced both the Zacks Consensus Estimate of 39 cents and the year-earlier quarter earnings of 34 cents per share. On a reported basis, Wyndham delivered earnings of 41 cents per share versus 27 cents in the prior-year quarter.
The increase was mainly driven by higher revenue per available room (RevPAR) in the Lodging business, strong operational performance by the Vacation Ownership and Vacation Exchange and Rentals business.
Net revenue spiked 7.4% year over year to $952 million in the reported quarter, reflecting a modest adjusted sales momentum across Wyndham’s three business units and substantial contributions from acquisitions. However, revenues failed to beat the Zacks Consensus Estimate of $962 million.
Inside the Headline Numbers
The company’s Lodging segment reported revenues of $149 million, up 3% year over year, driven by a 7.4% rise in RevPAR and other franchise fees. Incremental revenue from the recently acquired Tryp hotel brand also contributed to the growth.
Revenues from the Vacation Exchange and Rentals segment climbed 19% year over year to $356 million. Vacation rental revenues escalated 20% from the prior-year period to $150 million, buoyed by the acquisitions including James Villa Holidays. Exchange revenues were $194 million, up 3% year over year.
Vacation Ownership segment at Wyndham inched up 1.4% to $450 million on the back of an increase in gross Vacation Ownership Interest sales, a lower provision for loan losses and incremental sales under the Wyndham Asset Affiliation Model.
Hotel Update
At quarter end, Wyndham had approximately 7,190 properties or 609,600 rooms, down from 7,210 properties in the prior quarter. The development pipeline included over 830 hotels and approximately 102,000 rooms, of which 57% were newly constructed and 57% were international.
Financials
At quarter-end, Wyndham’s cash and cash equivalents were approximately $175 million and free cash flow was $185 million.
During the quarter, the company repurchased approximately 5.7 million shares of its common stock at an average price of $30.62 per share. During the quarter, the company’s board of directors also approved an additional buy back authorization of $500 million.
Outlook
For full-year 2011, management raised its earnings per share guidance from $2.05 to $2.15 to $2.15 to $2.25 range. However, the company maintained its 2011 revenue guidance of approximately $4.0–$4.2 billion and adjusted EBITDA of approximately $925–$955 million.
Our Take
We expect Wyndham to benefit from its repositioning to a more fee-for-service-based business, free cash flow generation and a series of acquisitions including James Villa Holidays and ResortQuest, and thus remain optimistic on the stock. Moreover, the company is strengthening its presence in Europe and Latin America as well as Asian markets like China and India.
However, considering the intense competition from its peers including Starwood Hotels & Resorts Worldwide Inc. (HOT) and Marriott International Inc. (MAR) and slow revival in the US lodging industry, we remain on the sidelines. Wyndham currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term Neutral recommendation on the stock.
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