Wyndham Worldwide Corporation’s (WYN) third quarter 2010 adjusted earnings of 68 cents per share came well ahead of both the Zacks Consensus Estimate of 63 cents and the company’s guidance of 60 to 64 cents. In the year-earlier quarter, the company had earned 58 cents per share.
The increase was largely driven by strong operational performance by the Vacation Ownership business, higher revenue per available room (RevPAR) in the Lodging business and a lower effective tax rate. On a reported basis, Wyndham recorded 84 cents per share.
Net revenue spiked 5% year over year to $1,065 million in the quarter under review, reflecting solid sales momentum in each of Wyndham’s three business units. However, revenues fell short of the Zacks Consensus Estimate of $1,070 million.
Inside the Headline Numbers
The Lodging segment’s revenues increased 11% year over year to $203 million. This increase was driven by the increase in RevPAR and other franchise fees as well as higher fees generated from ancillary services provided to franchisees. System-wide RevPAR grew 6.7% (6.4% on a constant currency basis).
Revenues from Vacation Exchange and Rentals segment nudged up 1% year over year to $330 million. On a constant currency basis, revenues increased 5%. Vacation rental revenues and annual dues and exchange revenues shot up 3% from the prior-year period to $161 million buoyed by the recently acquired Hoseasons brand and favorable pricing for bookings.
Revenues from the Vacation Ownership segment rose 5% to $533 million. The increase was credited to lower loan loss provisions and substantial contribution from gross Vacation Ownership Interest (VOI) sales. Gross VOI or timeshare sales climbed 13% year over year to $412 million driven by an 8% increase in tour flow and a 7% increase in volume per guest.
Update on Hotel Rooms
At quarter-end, Wyndham had approximately 7,150 properties and 605,700 rooms — flat, sequentially. Of the total number of rooms, 25% were international. The development pipeline includes 930 hotels with 107,500 rooms, of which 54% were new construction and 47% were international.
Financials
At quarter-end, Wyndham’s cash and cash equivalents were approximately $170 million compared with $155 million at December 31, 2009.
During the quarter, the company repurchased approximately 4.8 million shares of its common stock at an average price of $25.07 per share.
Outlook
For the fourth quarter of 2010, Wyndham expects adjusted earnings per share to be in the range of 40 cents to 44 cents.
Management raised its full-year 2010 outlook. It now expects adjusted earnings to be in the range of $1.94–$1.98 per share compared with its prior guidance of $1.78–$1.88. Adjusted EBITDA is expected to remain in the range of $855–$865 million compared with the prior projection of $825–$860 million.
Management issued preliminary guidance for 2011, which assumes revenues of approximately $4.0–$4.2 billion and adjusted EBITDA of approximately $925–$955 million.
Our Take
We remain positive on the stock as we expect Wyndham to benefit from its repositioning to a more fee-for-service-based business and strategic focus on Vacation Exchange and Rental business as well as international expansion. Its recent acquisition of ResortQuest, a vacation rental firm in the U.S. will strengthen its presence in the domestic market, in which Wyndham’s share is low. With this acquisition, Wyndham becomes the world’s largest full-service vacation rental business providing access to more than 85,000 vacation properties in approximately 100 countries.
Additionally, considering the reviving lodging industry and increasing occupancy rate, we expect revenue improvement to gain momentum in the near future. Wyndham currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.
