Wyndham Beats Earnings on Strong RevPAR

Leading hospitality company, Wyndham Worldwide Corporation’s (WYN), first-quarter adjusted earnings of 78 cents per share beat the Zacks Consensus Estimate of 75 cents by 4.0% which, we believe, was due to better-than-expected revenues.

Further, quarterly earnings were up 9.9% 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 5.6% year over year to $1.21 billion in the quarter, beating the Zacks Consensus Estimate of $1.19 billion by 1.7%. 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 6.8% year over year to $237.0 million in the quarter, driven by a 7.6% rise in domestic revenue per available room (RevPAR), higher franchise fees and earnings before interest, taxes, depreciation and amortization (:EBITDA)-neutral hotel management reimbursable fees.

Systemwide RevPAR grew 4.0% in the quarter. The increase reflects a 7.6% domestic increase, partially offset by a 4.3% decline in international RevPAR, primarily reflecting unfavorable currency movements.

Revenues from the Vacation Exchange and Rentals segment were up 1% year over year to $379.0 million. However, in constant currency, segment revenues remained flat.

Vacation rental revenues went up 6.0% year over year to $176.0 million, while Exchange revenues were down 3% to $187.0 million. In constant currency, exchange revenues declined 2.0% year over year because a 1.6% improvement in average number of members was neutralized by a 3.7% drop in exchange revenue per member.

Revenues from the Vacation Ownership segment rose 8.0% year over year to $593.0 million, driven by higher gross Vacation Ownership Interest (:VOI) sales and a lower loan loss provision. Gross VOI sales were up 7% year over year to $410 million, gaining from a 4.3% rise in tour flow and 2.8% increment in volume per guest.

Adjusted EBITDA grew 2.0% year over year to $115 million during the quarter, buoyed by increased revenues.

Share Repurchase

Wyndham has bought back approximately 2.1 million shares for $150 million during the first quarter of 2014. From Apr 1 through Apr 23, 2014, the company repurchased an additional 0.6 million shares for $42 million. The company's remaining share repurchase authorization is worth $476 million as of Apr 23, 2014.

Guidance for 2014

Wyndham maintained its revenue and EBITDA guidance for 2014. It expects revenues within $5.250–$5.350 billion while adjusted EBITDA is expected in the $1.215 to $1.240 billion range.

The company has raised its earnings guidance for 2014. The company now anticipates adjusted earnings per share within the range of $4.23–$4.33, up from the prior range of $4.18–$4.28. The Zacks Consensus Estimate for 2014 stands at $4.31.

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 regarding 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 carries a Zacks Rank #4 (Sell).

Among other hoteliers, Marriott International, Inc. (MAR) is slated to report first-quarter 2013 earnings on Apr 29, whereas Hyatt Hotels Corp. (H) is slated to report earnings on Apr 30. Another hotelier, Intercontinental Hotels Group plc (IHG) is scheduled to report earnings on May 20.

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