Wyndham credits tax reform, hurricanes for Q4 results
 
Wyndham credits tax reform, hurricanes for Q4 results
14 FEBRUARY 2018 10:30 AM

During its fourth-quarter and full-year 2017 earnings call with investors, the company had little to add about its pending acquisition of La Quinta Inns & Suites, which is expected to close in the second quarter. 

PARSIPPANY, New Jersey—Despite a continuing drag on performance from three major hurricanes and wildfires in the third quarter, Wyndham Worldwide reported fourth-quarter 2017 results exceeded expectations, which the company credits in part to a boost from U.S. tax reform.

“Weather events in the third quarter had an unusually pronounced effect on fourth-quarter operating results,” the company states in an earnings news release.

Hurricanes that hit Florida, Texas, Puerto Rico and the Caribbean reduced fourth-quarter revenues, net income and earnings before interest, taxes, depreciation and amortization by $15 million, $10 million and $16 million, respectively, as a primary result of the temporary closure of Wyndham Vacation Ownership sales centers in the Caribbean and of its Wyndham Rio Mar hotel in Puerto Rico (which reopened to guests last week), the news release states.

Still, Wyndham Hotel Group reported fourth-quarter revenue of $332 million, a 5% increase over $316 million in Q4 2016. Revenue per available room in the fourth quarter increased 4.5% domestically and 4.6% globally year over year on a constant currency basis. Average daily rate grew 5.1% to $67.01, despite nearly flat occupancy (+0.8% to 52%), compared with Q4 2016.

RevPAR growth in the quarter was “driven by particularly strong performance at our economy brands” and performance in Florida and Texas, “which benefited modestly from weather-related demand,” Wyndham Worldwide EVP and CFO David Wyshner told analysts on a call to discuss the company’s fourth-quarter and full-year 2017 earnings.

There was other good news in the fourth quarter for Wyndham.

The company credited U.S. tax reform with a $426 million benefit to its net income for continuing operations. That contributed to total cash flow in 2017 of $799 million (+2.2% from $782 million in 2016), which was higher than the company had anticipated, Wyshner said.

Going forward, Wyndham expects new tax rates, as a result of the reform, to enhance its free cash flow by approximately $100 million a year.

“Over time, we expect the tax reform will allow us to invest more in our business and to have more cash flow available to return to shareholders,” Wyshner said.

“All in all, we think it was a darn good year,” he added.

Wyndham Worldwide Chairman and CEO Stephen P. Holmes pointed to other highlights in the fourth quarter, including the $1.95-billion acquisition of La Quinta Holdings’ hotel franchise and management businesses announced on 18 January, which he said is still on track to close in the second quarter of this year.

Holmes called it “a compelling transaction on many fronts,” noting that the La Quinta addition will expand Wyndham’s portfolio to 21 brands and more than 9,000 hotels across more than 75 countries, and will “build upon our strong midscale presence (and) expand our reach further into the fast-growing upper midscale segment.”

Wyndham expects to “generate synergies of $55 million to $70 million” as it integrates La Quinta, “primarily through the elimination of duplicated costs,” Holmes said.

Executives on the call also said Wyndham’s own split of its hotel group and the timeshare businesses into separate publicly traded companies is also progressing as expected and is on track to close in the second quarter.

Q4 and full-year performance
In the fourth quarter, Wyndham “classified its European vacation rentals business, for which it is exploring strategic alternatives, as a discontinued operation,” according to a company news release.

From continuing operations, the company reported revenues of $1.2 billion for the fourth quarter, up 4% year-over-year, and net income of $462 million, up 182% from $164 million in Q4 2016. Full-year revenues from continuing operations was $5.1 billion, up 3% from 2016, and net income was $819 million, up 50.3% from $545 million year over year, according to the company.

The company reported full-year occupancy of 55.1% (+1.3% over 2016), ADR of $68.24 (+1.2% over 2016) and RevPAR of $37.63 (+2.6% over 2016).

Wyndham reported 4% growth in its hotel system in the fourth quarter, which as of 31 December 2017 consisted of approximately 728,000 rooms at more than 8,400 properties. Nearly 1,160 hotels, representing more than 148,200 rooms, are in the development pipeline—a 7% year-over-year increase in rooms. Of those projects, 58% are international, and 68% are new construction, according to the company news release.

For full-year 2018, Wyndham projects revenues of $5.3 billion to $5.4 billion, an increase of 4% to 6% year over year, and adjusted net income of $702 million to $722 million from continuing operations (+23% to +27% over 2017). The projections, according to the company release, “exclude the impact of the La Quinta acquisition and the financing thereof, exclude the impact from our European vacation rentals business, which is treated as a discontinued operation (and) exclude costs associated with the company’s planned separation into two separate publicly-traded companies.”

Wyndham Worldwide’s stock was up 2.7% year to date as of press time. The Baird/STR Hotel Stock Index was down 0.16% for the same time period.

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