Wyndham Worldwide Corporation’s (WYN) fourth quarter 2010 adjusted earnings of 46 cents per share outpaced both the Zacks Consensus Estimate of 44 cents and the company’s guidance of 40 to 44 cents.

In the year-earlier quarter, the company had earned 40 cents per share. On a reported basis, Wyndham reported earnings of 43 cents per share versus 40 cents recorded in the prior-year quarter.

The increase was largely driven by higher revenue per available room (RevPAR) in the Lodging business, strong operational performance by the Vacation Ownership business and a lower effective tax rate.

Net revenue nudged up 2.6% year over year to $937 million in the quarter under review, reflecting a modest adjusted sales momentum in each of Wyndham’s three business units. However, revenues fell short of the Zacks Consensus Estimate of $942 million.

For full-fiscal 2010, earnings were $2.00 per share versus $1.80 in 2009. Revenues increased 2.7% to $3,851 million.

Inside the Headline Numbers

The Lodging segment’s revenues increased 9% year over year to $163 million driven by a 10% rise in RevPAR and other franchise fees. Incremental revenue from the recently acquired Tryp hotel brand and higher fees generated from ancillary services provided to franchisees also contributed to the growth.

Revenues from the Vacation Exchange and Rentals segment also grew 9% year over year to $282 million. On a constant currency basis, revenues expanded 12%. Vacation rental revenues surged 16% from the prior-year period to $114 million buoyed by the recently acquired businesses including James Villa Holidays. Exchange revenues were $153 million, flat year over year.

Revenues from the Vacation Ownership segment slipped 2.2% to $497 million. The decrease was due tough comparisons as 2009 included the recognition of $47 million previously deferred POC revenues. An increase in gross Vacation Ownership Interest sales, a lower provision for loan losses and incremental sales under the Wyndham Asset Affiliation Model partially offset this absence.   

Hotel Update

At quarter-end, Wyndham had approximately 7,210 properties and 612,700 rooms, up from 7,150 properties in the prior quarter. The development pipeline included over 900 hotels and approximately 103,000 rooms, of which 55% were newly construction and 51% were international.

Financials

At quarter-end, Wyndham’s cash and cash equivalents were approximately $155 million, flat year over year.

During the quarter, the company repurchased approximately 1.6 million shares of its common stock at an average price of $29.20 per share. During 2010, the company repurchased approximately 9.3 million shares.

Wyndham announced an increase in the quarterly cash dividend to 15 cents from 12 cents per share.

Outlook

Management maintained its guidance for 2011, which assumes revenues 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 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 intense competition from its peers  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 #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
STARWOOD HOTELS (HOT): Free Stock Analysis Report
 
MARRIOTT INTL-A (MAR): Free Stock Analysis Report
 
WYNDHAM WORLDWD (WYN): Free Stock Analysis Report
 
Zacks Investment Research