Hurricanes in the Caribbean have impacted companies operating in the leisure industry, and Wyndham Worldwide Corporation (NYSE:WYN) is no exception. Based on earnings though, the company seems to have navigated the issues remarkably well.
Nonetheless, WYN stock is down over 3%, which strikes me as a temporary, knee-jerk market reaction. Frankly, the market should have already priced in the lowered expectations given weather conditions. It’s not as though something out of the blue hit WYN.
I remain optimistic. WYN has a fortress brand with each of its three divisions puling its own weight. In particular, the Hotel Group is dominant with 8,000 hotels worldwide, and Vacation Ownership continues to post good growth figures with about 900,000 owner families globally.
WYN Stock Earnings
Digging into third quarter Wyndham earnings, at a high level, revenues were up 4% year-over-year and adjusted EBITDA increased a few percent year-over-year. These are pretty good numbers, better than I expected, with the adverse operational impact of the hurricanes.
WYN made it through and pulled away with results in line with prior expectations, which is a small feat in an of itself. Ultimately, hurricanes are considered a one-off event, and while this hurt the full year results, it’s also not an underlying business issue. More like a cost of doing business.
The estimates are that the “hurricanes reduced revenues, net income and EBITDA by $13 million, $6 million, and $9 million, respectively.” Vacation ownership sales centers in the Caribbean and Florida had to be closed as well as parts of the Rio Mar hotel.
That being said, on a YTD basis free cash flow still looks healthy at $541 million. It may be less than the same period last year, but it still allows for an increase in share repurchases. Whatever may come, management remains committed to returning cash to shareholders.
While overall performance may not have been the most exciting, I want to highlight the Vacation Ownership business, which is growing very nicely. Gross Vacation Ownership Interest (VOI) sales were up 7% increase in the face of hurricane headwinds. Tour flows similarly increased 7% with new owners and more tours driven to them.
I’m keeping my eye on this business line especially with the coming spinoff. Once the Hotel Group becomes fully independent Vacation Ownership will have to demonstrate that it can sustain the growth of the entity that holds the remaining assets.
WYN Hotel Group Spinoff
Wyndham’s announcement of its plans to spin off the company’s hotel business a couple months ago could be a catalyst to deliver better returns to shareholders. Given the hotel group’s dominant position, the intent is to garner a higher multiple with a cleaner publicly listed entity.
A multiple rerating for the Vacation Ownership and Destination Network businesses could be in store as well. Looking at a close competitor, which WYN has poached top talent from, Hilton Grand Vacations Inc (NYSE:HGV) trades a couple notches higher than WYN as an whole.
The transaction could unlock value on all fronts.
A pure play hotel company with over 708,500 rooms available is a savvy strategic move. With the kind of brand recognition and operational expertise that WYN has, they should be able to accomplish their goal.
So, even with a revised full year 2017 reassessment for Wyndham earnings, I’m bullish on them moving forward.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.