Wyndham Worldwide Reports Third Quarter 2010 Earnings Results Exceed Expectations Increases Full-Year Guidance
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Wyndham Worldwide Reports Third Quarter 2010 Earnings Results Exceed Expectations Increases Full-Year Guidance
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Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2010-10-26
Wyndham Worldwide Corporation (NYSE:WYN) today announced results for the three months ended September 30, 2010.
HIGHLIGHTS:
Third quarter 2010 adjusted diluted earnings per share (EPS) was $0.68, compared with Company-issued guidance of $0.60 – $0.64 and $0.58 in the third quarter of 2009. Third quarter 2010 reported diluted EPS was $0.84, an increase of 47% from the same period in 2009.
Free cash flow, which the Company defines as net cash provided by operating activities less capital expenditures, equity investments and development advances and excluding previously announced cash payments related to contingent IRS tax liabilities, increased 24% to $564 million in the first three quarters of 2010, compared with $454 million during the same period in 2009.
During the quarter, the Company repurchased approximately 4.8 million shares of its common stock at an average price of $25.07.
The Company announced on October 21, 2010 that it completed a term securitization transaction involving the issuance of $300 million of investment-grade asset-backed notes at an advance rate of 88% and an all-in yield of 3.7%.
On September 30, 2010, the Company's Vacation Exchange & Rentals unit completed the previously announced acquisition of ResortQuest, a leading provider of U.S. full-service vacation rentals.
"This quarter's strong results reflect continued superior execution throughout our company and further strengthening of business fundamentals," said Stephen P. Holmes, chairman and CEO, Wyndham Worldwide. "We continue to deploy free cash flow in a disciplined manner to drive growth and deliver shareholder value, balancing tuck-in acquisitions, share repurchases, convertible debt retirement and dividends."
THIRD QUARTER 2010 OPERATING RESULTS
Third quarter revenues increased 5% from the prior year period to $1,065 million. Excluding the $36 million of Vacation Ownership revenue associated with the percentage-of-completion (POC) accounting method in the third quarter of 2009, third quarter 2010 adjusted revenue growth was 9%. The adjusted revenue growth primarily reflects continued sales momentum across the Company's business units.
For the third quarter of 2010, adjusted net income increased by 18% to $125 million, compared with $106 million for the same period in 2009. The increase primarily reflects strong operational performance by the Vacation Ownership business, higher RevPAR in the Lodging business and a lower effective tax rate.
Reported net income for the third quarter of 2010 grew 50% to $156 million, or $0.84 per diluted share, compared with net income of $104 million, or $0.57 per diluted share, for the third quarter of 2009. The increase in reported net income from 2009 primarily reflects an after-tax $38 million net benefit principally related to the resolution of the IRS examination of taxable years 2003 through 2006 of Cendant (Wyndham Worldwide's former parent), partially offset by a $6 million after-tax loss incurred for the repurchase of a portion of the Company's 3.50% convertible notes.
Free cash flow totaled $564 million in the nine-month period ended September 30, 2010 compared with $454 million in the same period in 2009. The growth of free cash flow reflects higher cash earnings and more efficient working capital utilization. Cash provided by operating activities was $528 million for the nine months ended September 30, 2010, compared with $569 million for the prior-year period.
BUSINESS UNIT RESULTS
Lodging (Wyndham Hotel Group)
Revenues were $203 million in the third quarter of 2010, an increase of 11%, compared with the third quarter of 2009, reflecting an increase in RevPAR and other franchise fees as well as higher fees generated from ancillary services provided to franchisees, which are substantially offset in EBITDA by related costs.
In the third quarter of 2010, RevPAR increased 6.7%, or 6.4% in constant currency. Third quarter 2010 EBITDA was $67 million, an increase of 16%, compared with third quarter of 2009.
As of September 30, 2010, the Company's hotel system consisted of approximately 7,150 properties and 605,700 rooms, flat from the second quarter of 2010. Approximately 25% of the Company's hotel system is international. The development pipeline included approximately 930 hotels and 107,500 rooms, of which 54% were new construction and 47% were international.
Vacation Exchange and Rentals (Wyndham Exchange & Rentals)
Revenues were $330 million in the third quarter of 2010, an increase of 1% compared with the third quarter of 2009. In constant currency, revenues increased by 5%.
Exchange revenues were $163 million, relatively flat compared with the third quarter of 2009. Exchange revenue per member and the average number of members were flat.
Vacation rental revenues were $161 million, a 3% increase compared with the third quarter of 2009. In constant currency, vacation rental revenues increased 11% from the third quarter of 2009, reflecting the contribution of incremental revenues from the recently acquired Hoseasons brand and favorable pricing for bookings made close to arrival dates.
Third quarter 2010 Exchange and Rentals EBITDA was $103 million, a decrease of 4%, compared with EBITDA of $107 million in the third quarter of 2009. Excluding an unfavorable net effect of foreign currency of $2 million and $1 million of costs related to the acquisition of ResortQuest during September 2010, third quarter 2010 adjusted EBITDA was relatively flat compared with the prior-year period. This performance reflects the contribution of Hoseasons offset by increases in operating expenses including value-added taxes.
Wyndham Exchange & Rentals acquired ResortQuest on September 30th. ResortQuest is a leading provider of full-service vacation rentals in the U.S. and adds approximately 6,000 vacation rental properties. With this acquisition, Wyndham Worldwide enters the U.S. vacation rental market and becomes the world's largest full-service vacation rental business, providing access to more than 85,000 vacation properties in approximately 100 countries.
Vacation Ownership (Wyndham Vacation Ownership)
Gross Vacation Ownership Interest (VOI) sales were $412 million in the third quarter of 2010, up 13% from the third quarter of 2009, reflecting an 8% increase in tour flow and a 7% increase in volume per guest.
Total segment revenues were $533 million in the third quarter of 2010, compared with $508 million in the third quarter of 2009, which included the recognition of $36 million of previously deferred POC revenues. The absence of these revenues in the third quarter of 2010 was more than offset by an increase in gross VOI sales and a lower provision for loan losses.
EBITDA for the third quarter of 2010 was $123 million, compared with EBITDA of $104 million in the third quarter of 2009. Excluding an estimated $17 million impact from the POC method of accounting in the third quarter of 2009, third quarter 2010 adjusted EBITDA growth was 41%. This growth reflected the lower provision for loan losses and the increase in VOI sales.
Other Items
The Company repurchased approximately 4.8 million shares of its common stock during the third quarter of 2010 at an average price of $25.07 and an additional 600,000 shares at an average price of $28.72 through October 25, 2010.
On September 20, 2010, the Company completed the issuance of senior unsecured notes in the amount of $250 million, which bear an interest rate of 5.75% per year and are due February 1, 2018.
During the third quarter of 2010, the Company repurchased $92 million face value of its 3.50% convertible notes and retired the call options and warrants associated with these notes.
Interest expense in the third quarter of 2010 was $47 million, an increase of $13 million from the third quarter of 2009, primarily reflecting a loss incurred for the repurchase of a portion of the Company's 3.50% convertible notes during the third quarter of 2010.
On October 21, 2010, the Company announced that it completed a term securitization transaction involving the issuance of $300 million of investment-grade, asset-backed notes with an advance rate of 88%. Sierra Timeshare 2010-3 Receivables Funding LLC issued $250 million of A rated and $50 million of BBB rated notes, with coupons of 3.51% and 4.44%, respectively, backed by vacation ownership loans.
Balance Sheet Information as of September 30, 2010:
Cash and cash equivalents of approximately $170 million, compared with $155 million at December 31, 2009
Vacation ownership contract receivables, net, of $3.0 billion, compared with $3.1 billion at December 31, 2009
Vacation ownership and other inventory of approximately $1.2 billion, compared with $1.3 billion at December 31, 2009
Securitized vacation ownership debt of $1.6 billion, compared with $1.5 billion at December 31, 2009
Other debt of $2.0 billion, unchanged from December 31, 2009. The remaining borrowing capacity on the revolving credit facility was $896 million, compared with $869 million as of December 31, 2009.
A schedule of debt is included in the financial tables section of this press release.
Outlook
The Company increased full-year 2010 guidance:
Adjusted EBITDA increased to $855 – $865 million from $825 – $860 million
Adjusted diluted EPS increased to $1.94 – $1.98 from $1.78 – $1.88
For the fourth quarter of 2010, the Company expects adjusted diluted EPS of $0.40 – $0.44, including an estimated tax rate of 24%.
Management provided preliminary guidance for the full-year 2011:
Revenues of approximately $4.0 – $4.2 billion
Adjusted EBITDA of approximately $925 – $955 million
The guidance reflects assumptions used for internal planning purposes. All guidance excludes legacy items, restructuring costs, debt extinguishment and acquisition costs, if any, which may have a positive or negative impact on reported results. If economic conditions change materially from current levels, these assumptions and our guidance may change materially. It is not practicable to provide a reconciliation of forecasted adjusted EBITDA and EPS to the most directly comparable GAAP measures because certain items cannot be reasonably estimated or predicted at this time. Any such items could be significant to our financial results.
Conference Call Information
Wyndham Worldwide Corporation will hold a conference call with investors to discuss this news on Tuesday, October 26, 2010 at 8:30 a.m. EDT. Listeners may access the webcast live through the Company's website atwww.wyndhamworldwide.com/investors/. An archive of this webcast will be available at the website for approximately 90 days beginning at noon EDT on October 26, 2010. The conference call may also be accessed by dialing (800) 369-2052 and providing the passcode "WYNDHAM." Listeners are urged to call at least 10 minutes prior to the scheduled start time. A telephone replay will be available for approximately 90 days beginning at noon EDT on October 26, 2010, at (800) 395-6236.
Presentation of Financial Information
Financial information discussed in this press release includes both GAAP and non-GAAP measures, which include or exclude certain items. These non-GAAP measures differ from reported results and are intended to illustrate what management believes are relevant period-over-period comparisons. A complete reconciliation of reported GAAP results to the comparable non-GAAP information appears in the financial tables section of the press release.
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