Wyndham's Q3 2017 takes natural disasters in stride, reports positive results

The Wyndham Grand Rio in Puerto Rico remains damaged due to the Hurricane Maria, with many of its rooms reserved for recovery efforts.

With hurricanes, earthquakes and wildfires striking North America and Caribbean over the past two months, hotel companies were finding it tough to stay optimistic as they approached their third-quarter 2017 earnings calls. However, Wyndham Worldwide revealed that despite a rocky end to the quarter, the company managed to report $1.6 billion in revenues for this past quarter, a 4-percent increase year-over-year, placing the company’s performance in line with its previous expectations.

Wyndham Worldwide’s net income for Q3 2017 was $203 million, which compared favorably with the $196 million reported in the same period last year. However, despite this positive performance, Stephen Holmes, chairman and CEO of Wyndham Worldwide, said during the earnings call that natural disasters, primarily hurricanes Maria and Harvey, reduced revenues by $13 million and net income by $6 million. This is primarily due to the closure of vacation-ownership sales centers located in the Caribbean and Florida, as well as the closure of several portions of the Wyndham Rio Mar hotel in Puerto Rico.

Currently, two of the company’s vacation-ownership sales centers in the Caribbean remain closed. David Wyshner, EVP and CFO at Wyndham Worldwide, estimated the company lost a total of 5,000 tours during Q3 as a result of the storms, something he expects will continue to negatively impact operations in Q4 2017.

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Wyndham's hotel and vacation-ownership groups are splitting apart, which will be completed by Q2 2018.

The Spinoff

On the topic of vacation ownership, Holmes said Wyndham’s previously announced spinoff of Wyndham Vacation Ownership is also progressing, and is on track for completion in Q2 2018. By that time, Wyndham Hotel Group will become a pure-play hotel company while Wyndham Vacation Ownership will become a publicly traded timeshare company, and will be combined with Wyndham Destination Network, owner of timeshare company RCI. However, Holmes said it will still be several months until the company has anything more definitive to say about the separation.

“We are confident that the spinoff that will leave Wyndham Vacation Ownership and RCI under one umbrella will unlock shareholder value and increase growth opportunities,” Holmes said. “The separation will allow each company to grow its core business and facilitate capital growth.”

Wyndham’s hotel unit generated $368 million in revenue during Q3 2017, a slight increase from $364 million from the previous year. The results were sourced to a 9-percent increase in royalties and franchise fees, as well as growth in the Wyndham Rewards credit card program. Third-quarter domestic revenue per available room increased 2.3 percent over the same period in 2016.

As of Sept. 30, 2017, Wyndham Hotel Group’s portfolio consisted of more than 8,100 properties and more than 708,500 rooms, up 3 percent over Q3 2016. The company’s development pipeline is also at 1,190 hotels, up 10 percent year-over-year, 57 percent of which are international and 68 percent are new construction. Wyndham’s portfolio was also bolstered by its acquisition of AmericInn, which added 200 hotels and approximately 11,600 rooms across 21 states.

“Our recent acquisition of AmericInn, which we closed this month, speaks to this runway [of development] as we expand our base in the midscale segment,” Geoff Ballotti, president and CEO of Wyndham Hotel Group, said during the call. “We have also removed over 80,000 substandard domestic rooms from our system over the past three years, and our domestic pipeline is up 30 percent over the past three years.”

Wyndham's acquisition of AmericInn, which closed this month, added 200 hotels to its portfolio.

Revised Projections

Wyndham Destination Network revenues were up $511 million in Q3 2017, compared with $486 million in Q3 2016, or an increase of 5 percent. Vacation rental revenues were $327 million compared with $304 million the previous year. Meanwhile, vacation-ownership revenues were up to $773 million last quarter, compared to $744 million in Q3 2016—an increase of 4 percent. Tour flow was also up 7 percent, which was driven by increased tours to new owners, while volume per guest declined 1 percent. This decline was sourced to a 16-percent increase in sales in North America to new owners, which produce an overall lower volume per guest. 

“Vacation-ownership tour flow has been disrupted for Q3… and we are working to mitigate the financial impact of these [natural disasters], but we anticipate a negative impact of $20 [million] to $30 million,” Wyshner said. “As a result, we are reducing our full-year revenue projections to $5.8 billion [to] $5.85 billion, and adjusted net income of $618 million to $628 million.”

Michael Brown, president and CEO of Wyndham Vacation Ownership, said the organization remains attractive to customers because travelers enjoy the value proposition behind vacation ownership, and said growing new owners is the “lifeblood of our business.”

“We are deeply committed to growing new owners, and working with the hotel group to grow that segment of the business.”

Overall, the company was able to withstand the brunt of this past quarters’ natural disasters while acknowledging losses in affected areas.

"Despite the weather-related challenges in the quarter, we generated a strong increase in new timeshare owners and year-over-year growth in our earnings per share. We have also strengthened our presence in the midscale hotel segment with the addition of the AmericInn brand and its 200 franchised hotels in October,” Holmes said in a prepared statement during the call. “Furthermore, we have increased our share repurchase authorization to reflect our continued focus on returning cash to shareholders, and we are working tirelessly to execute our previously announced separation into two publicly traded companies.”