Leading hospitality company, Wyndham Worldwide Corporation (WYN) posted mixed third-quarter results with earnings beating the Zacks Consensus Estimate while revenues missed the same. Domestic RevPar increased more than 8% for the second consecutive quarter. Moreover, the company increased its earnings guidance for 2014 for the second time in a row.
Adjusted earnings of $1.67 per share beat the Zacks Consensus Estimate of $1.63 by 2.5%. Also, earnings were up 18% year over year. The upside reflects year-over-year increase in revenues and lower share count.
Net revenue grew 6.1% year over year to $1.51 billion in the quarter owing to solid revenue growth in all the three operating segments. However, it missed the Zacks Consensus Estimate of $1.52 billion by 0.7%, possibly due to currency headwinds.
Inside the Headline Numbers
Adjusted EBITDA increased 11% year over year to $418.0 million.
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 6% year over year to $315.0 million in the quarter, driven by a rise in revenue per available room (RevPAR).
Systemwide RevPAR grew 4.6% in the quarter. The increase reflects an 8.4% domestic increase, partially offset by a 3.5% decline in international RevPAR, which primarily reflects unfavorable currency movements and growth in countries that contributed less to RevPAR.
Adjusted EBITDA was $107 million, up 13% year over year, owing to an increase in revenues.
Revenues from the Vacation Exchange and Rentals segment were up 9% year over year to $512.0 million. However, in constant currency, segment revenues increased 6%.
Vacation rental revenues went up 13% year over year to $331.0 million. Exchange revenues were up 3% to $162.0 million as the average number of members increased 1.8% and exchange revenue per member increased 1.1%. EBITDA was $159 million, up 13% year over year.
Revenues from the Vacation Ownership segment rose 4% year over year to $704.0 million, driven by 8% higher net VOI revenues and also higher resort management fees.
Volume per guest (VPG) declined primarily due to an increase in the percentage of new owner tours. These new owner tours generally have lower VPG than tours to existing owners. EBITDA increased 7% year over year, thanks to higher revenues.
Share Repurchase Update
During the quarter, Wyndham bought back approximately 2.0 million shares for $161 million. From Oct 1 through Oct 23, 2014, the company repurchased an additional 0.6 million shares for $50 million.
Also, the board of directors approved a $1 billion increase in the share repurchase authorization, which stood at $1.1 billion as of Oct 23, 2014.
Earnings Guidance for 2014 Raised
Wyndham has raised its earnings guidance for 2014. The company now anticipates adjusted earnings per share within the range of $4.45 to $4.48 per share compared to the previous expectation of $4.34–$4.44. The current guidance is higher than the year-ago figure of $3.83 per share and the Zacks Consensus Estimate of $4.43.
However, the company maintained its revenue and EBITDA guidance for 2014. The company expects revenues within $5.25–$5.35 billion and adjusted EBITDA in the range of $1.23–$1.25 billion.
Guidance for 2015
The company expects earnings per share in the range of $4.70 to $4.85 in 2015. The Zacks Consensus Estimate is currently pegged at $4.90, higher than the guidance provided by the company. Revenue is expected in the range of $5.40 to $5.50 billion while EBITDA is expected in the range of $1.30 to $1.33 billion in 2015.
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 and share buybacks also inspire optimism around the stock. However, excessive exposure to the sluggish European economy and political instability in some of its operating regions act as headwinds.
Wyndham currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Choice Hotels International Inc. (CHH), Marriott Vacations Worldwide Corp. (VAC), and China Lodging Group, Ltd. (HTHT). While Choice Hotels International and Marriott Vacations Worldwide sport a Zacks Rank #1 (Strong Buy), China Lodging Group carries a Zacks Rank #2 (Buy).
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