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Wyndham Misses on Earnings by 1c, Up Y/Y

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Leading hospitality company, Wyndham Worldwide Corporation (WYN - Free Report) , posted mixed fourth-quarter 2013 results. The company’s fourth-quarter adjusted earnings of 73 cents per share missed the Zacks Consensus Estimate of 74 cents by a penny which we believe was due to higher total expenses.

However, quarterly earnings were up 15.9% 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 9.2% year over year to $1.2 billion in the quarter, beating the Zacks Consensus Estimate of $1.18 billion by 1.7%. Solid revenue growth in all 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 10% year over year to $245.0 million in the fourth quarter, driven by a 4.7% rise in domestic revenue per available room (RevPAR) and higher hotel management reimbursable fees. The segment’s revenues also gained from the increase in the company’s system size

Systemwide RevPAR grew 3.8% gaining from higher RevPAR growth in China.

Revenues from the Vacation Exchange and Rentals segment were up 4% year over year to $305.0 million. However, in constant currency, segment revenues were up only 1% year over year (acquisitions excluded).

Vacation rental revenues went up 10% year over year to $138.0 million, while Exchange revenues were down 2% to $150.0 million, reflecting the negative currency translation. In constant currency, exchange revenues remained flat year over year because a 1.6% improvement in average number of members was neutralized by a 1.8% drop in exchange revenue per member.

Revenues from the Vacation Ownership segment rose 12.0% year over year to $658.0 million, driven by higher gross Vacation Ownership Interest (VOI) sales. Gross VOI sales were up 12% year over year to $488 million, gaining from a 6.6% rise in tour flow and 6.5% increment in volume per guest.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) grew 9.6% year over year to $239 million during the quarter, riding on higher EBITDA in Lodging and Vacation Ownership segments.

Hotels Update

Wyndham had 7,490 properties with 645,400 guestrooms at the end of the fourth quarter. Additionally, 970 hotels with nearly 114,000 rooms are currently in the company’s construction pipeline, most of which are located internationally.

Share Repurchase

Wyndham has bought back approximately 9.7 million shares worth $590.0 million for full-year 2013. In the period between Jan 1, 2014 and Feb 6, 2014, Wyndham bought back another 0.3 million shares for $24 million. Currently, it has $643 million remaining under its share repurchase programs as of Feb 6, 2014.

Dividend Increase

Wyndham also hiked quarterly dividend by 20.7% to 35 cents, thus bringing the annualized dividend to $1.40 compared with the previous payout of $1.16 per share.

Full-Year 2013 Highlights

In full-year 2013, adjusted earnings per share were $3.83 ahead of the Zacks Consensus Estimate of $3.82 by 0.3% and the year-ago quarter’s earnings of $3.23 by 18.6%. In 2013, revenues increased 10% year over year to $5.0 billion which was in line with the Zacks Consensus Estimate.

Guidance for 2014

Wyndham maintained its revenues 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.

After posting year over year earnings growth throughout 2013, the company has raised its earnings guidance for 2014. The company now anticipates adjusted earnings per share within the range of $4.18–$4.28, up from the prior range of $4.12–$4.22. The Zacks Consensus Estimate for 2014 stands at $4.38.

Our Take

Although the Zacks Rank #2 (Buy) company missed the Zacks Consensus Estimate marginally due to higher expenses, the company has performed impressively on the revenue front. We are encouraged by the company’s consecutive rise in earnings guidance, a strong developmental pipeline, significant international exposure and transition to a greater fee-for-service-based business.

Another hotelier Marriott International, Inc. (MAR - Free Report) is slated to report fourth-quarter 2013 earnings on February 19, 2014. Some better-ranked stocks in the hotels sector include Choice Hotels International Inc. (CHH - Free Report) and Hyatt Hotels Corp. (H - Free Report) both carrying a Zacks Rank #2.

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