Wyndham Worldwide Corporation (WYN) reported fourth quarter earnings of 40 cents per share. Earnings were ahead of both the Zacks Consensus Estimate of 37 cents and the company’s guidance of 35 to 38 cents a share. The beat was driven by better-than-expected revenue.

The company had experienced a $7.63 loss per share in the prior-year period as a result of goodwill impairments, foreign currency losses, restructuring costs and legacy items. Excluding these items, the company reported adjusted earnings of 47 cents a share in the year-ago quarter.

Wyndham has also announced an increase in its quarterly cash dividend to 12 cents from 4 cents per share. This increase would be applicable to the dividend that is expected to be declared in the first quarter of 2010. The company also intends to resume its share buyback under its existing $200 million stock repurchase program. As of now, the remaining capacity is $157 million.

For full-year 2009, Wyndham reported an adjusted net income of $327 million or $1.80 per share, ahead of the Zacks Consensus Estimate of $1.75 per share. The company had earned $388 million or $2.18 per share on an adjusted basis in 2008.

Estimate Revisions Trend

Currently, the Zacks Consensus Estimate for 2010 is for core earnings of $1.62 per share. There were no estimate revisions for full year 2010 in either direction over the last 30 days. This implies that there is no clear directional pressure on the performance of the stock in the upcoming quarters. As a result, the stock retains its Zacks #3 Rank, which translates into a short-term Hold rating.

In terms of earnings surprises, the stock has exceeded in each of the last four quarters prior to the reported quarter, with a four-quarter average of 12%. This means that on an average, earnings beat the Zacks Consensus Estimate by 12%.

The current Zacks Consensus Estimates for the first quarter and full-year 2010 are earnings per share of 28 cents and $1.75, respectively. There is no upside potential (essentially a proxy for future earnings surprises) in the upcoming quarter and earnings are expected to be inline with the Zacks Consensus Estimate. The downside potential for the full-year 2010 estimate currently stands at 1%. Hence, we do not expect any significant price movement in the near-term.

Inside the Headline Numbers

Wyndham’s revenues of $913 million were flat compared to the prior-year period. Though the lodging industry continues to suffer as a result of the challenging macroeconomic environment which continues to impact both business and leisure travels, the deterioration has somewhat moderated.

The Lodging segment’s revenue was down 12% year-over-year to $149 million. This decrease was driven by the decline in revenue per available room (RevPAR). System-wide RevPAR dropped 11.9% (down 13.3% on a constant currency basis), including declines of 13.8% and 15.4% in domestic and international RevPAR, respectively.

Vacation Exchange and Rentals segment’s revenue increased 3% from the prior-year period to $258 million. On a constant currency basis, revenues were, however, flat. While vacation rental revenues and annual dues and exchange revenues were up from the prior-year period, ancillary revenues dropped in the quarter.

Vacation Ownership segment’s revenues were up 3% from the prior-year period to $508 million. The increase stemmed from lower loan loss provisions, a favorable impact from the percentage-of-completion method of accounting and higher ancillary revenue.

However, the positives were partially offset by lower sales of vacation ownership interest (VOI) sales. Gross VOI or timeshare sales plunged 21% year-over-year to $343 million. The company has decided to invest less in this business.

Net interest expense was $33 million, up $15 million from the year-ago quarter. The increase reflected lower capitalized interest and long-term debt issuances in May 2009.

Wyndham’s cash and cash equivalents as of Dec 31, 2009, were approximately $155 million compared with $135 million at Dec 31, 2008. For the year ended Dec 31, 2009, the company generated net cash from operating activities of around $690 million, significantly up from $109 million generated in 2008.

Outlook

Wyndham expects to report revenues in the range of $3.5 billion to $3.9 billion and adjusted EBITDA between $775 million and $800 million.

Going forward, we expect the company to benefit from its repositioning to a more fee-for-service based business, migrating most of its transactions to the web and from cash flow increases. However, the stressed economic conditions are expected to restrict improvements in the lodging sector metrics. An increase in the interest expenses is also expected in 2010.

All these factors are reflected in our long-term Neutral recommendation on the stock.

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