Wyndham Continues Earnings Growth

Wyndham Worldwide Corporation (WYN - Analyst Report) announced third quarter 2012 adjusted earnings of $1.13 per share, which surpassed the Zacks Consensus Estimate of $1.10 and improved 20% year over year. On a reported basis, Wyndham delivered earnings of $1.11 cents per share versus $1.08 in the prior-year quarter.

The increase in earnings was mainly driven by a surge in revenue per available room (RevPAR) in the Lodging business as well as strong operational performance of the Vacation Ownership business. Moreover, the company’s share repurchase program also pushed up the earnings for the quarter.

Net revenue climbed 4% year over year to $1,265.0 million in the reported quarter and also beat the Zacks Consensus Estimate of $1,264.0 million. The increase reflected growth across Wyndham’s Vacation Ownership and Hotel businesses, partially offset by a decline in Vacation Exchange and Rentals business arising from unfavorable currency impact.

Inside the Headline Numbers

The company’s Lodging segment reported revenue of $249.0 million for the quarter, up 12% year over year, driven by a 3.0% rise in RevPAR, market share gain and higher licensing fees.

Revenues from the Vacation Exchange and Rentals segment dropped 3.7% year over year to $420.0 million. However, in constant currency, excluding the impact of acquisitions, segment revenues remained flat. Vacation rental revenues were $248.0 million, down 5% and Exchange revenues were $157.0 million, down 2% year over year.

Revenues from the Vacation Ownership segment at Wyndham rose 9.0% to $608.0 million, on the back of increased Vacation Ownership Interest sales.

Hotels Update

At the end of the quarter, Wyndham owned approximately 7,260 properties or 618,100 rooms. The development pipeline included around 950 hotels and approximately 108,300 rooms, of which 55% were newly constructed and 47% were in the international market.

Liquidity

Wyndham exited the quarter with cash and cash equivalents of approximately $230.0 million as compared with $142.0 million at the end of 2011. As of June 30, 2012, long-term debt was $2.5 billion versus $2.2 billion at December 31, 2011.

Share Repurchase

During the quarter, the company repurchased approximately 2.6 million shares of its common stock for a total price of $133.0 million. For the next quarter, Wyndham has repurchased 915,000 shares for $49.0 million. The company currently has $608.0 million remaining under its current share repurchase authorization.

Guidance

For full-year 2012, management revised its revenue, earnings per share and EBITDA guidance. The company raised its revenue expectation from $4.425–$4.6 billion to $4.5–$4.6 billion. Wyndham increased the earnings per share guidance range from $3.10–$3.20 to $3.15–$3.20 and adjusted EBITDA outlook from $1.040–$1.055 billion to $1.045– $1.055 billion.

Our Take

Despite the challenging economic environment, Wyndham’s achievement of 20% growth in adjusted earnings for three consecutive quarters, better-than-expected earnings report and continued increase in earnings guidance depicts the strength in the company’s fundamentals.

Moreover, we expect the company to benefit from its shift to a more fee-for-service-based business, free cash flow generation, increased global travel demand and international expansion. Based on third quarter results and increased overall guidance, we expect the estimates to go up in the coming days.

One of Wyndham’s competitors, Marriott International Inc. (MAR - Analyst Report), reported third quarter 2012 earnings of 44 cents per share, surpassing the Zacks Consensus Estimate and year-ago quarter adjusted earnings of 29 cents per share.

Wyndham, which also competes with Starwood Hotels & Resorts Worldwide Inc. (HOT - Analyst Report), 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.