Wyndham Worldwide Reports Fourth Quarter and Full-Year 2017 Results
European Vacation Rentals Business Has Been Classified as a Discontinued Operation; Increases Dividend 14%; Company Also Provides Full-Year 2018 Projections
PARSIPPANY, N.J. (Feb. 14, 2018) -- Wyndham Worldwide Corporation (NYSE: WYN) today announced results for the fourth quarter and year ended December 31, 2017. The Company's adjusted results exceeded its most recent projections, published in October, and its reported results were further increased by the favorable impact of U.S. corporate tax reform on fourth quarter earnings.
In the fourth quarter, the Company classified its European vacation rentals business, for which it is exploring strategic alternatives, as a discontinued operation. As a result of this reclassification, the Company's results from continuing operations are not comparable to its previously reported results or its prior projections. The table linked here highlights results from continuing and discontinued operations: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Njg4Mjg2fENoa...
Full-year adjusted EBITDA from continuing and discontinued operations of $1,397 million compares to the Company's October projection of $1,380 million to $1,395 million of adjusted EBITDA in 2017. Table 9 of this release provides additional information regarding continuing and discontinued operations for both 2017 and 2016. Full reconciliations of GAAP results to non-GAAP measures for all reported periods appear in the tables to this press release, available here: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Mzk4NTc2fENoa...
FOURTH QUARTER 2017 OPERATING RESULTS
Fourth quarter revenues from continuing operations were $1.2 billion, up 4% compared with the prior-year period.
Net income from continuing operations in the fourth quarter of 2017 was $462 million compared with $164 million for the fourth quarter of 2016. Diluted earnings per share (EPS) from continuing operations was $4.54, versus $1.53 in the prior-year period. Net income from continuing operations was impacted by $426 million ($4.18 per share) of tax benefit recorded primarily as a result of the recently enacted Tax Cuts and Jobs Act and a $4 millionafter-tax expense ($0.04 per share) from the Act's impact on long-term incentive awards, $87 million ($0.86 per share) of after-tax impairment expense, $22 million ($0.22 per share) of after-tax separation costs and $2 million ($0.02 per share) of after-tax acquisition costs.
Adjusted net income from continuing operations for the fourth quarter of 2017 was $152 million or $1.49 per diluted share, compared with $147 million or $1.36 per diluted share in the fourth quarter of 2016. Adjusted results exclude separation costs, the initial impact of the Tax Cuts and Jobs Act, impairment expense and other items as detailed in Tables 7 and 8 of this press release. The growth in earnings primarily reflects higher revenues in all three of the Company's operating segments, partially offset by increased interest expense. Adjusted diluted EPS also reflects the benefit of the Company's share repurchase program.
"As we continue the process of separating into two publicly traded companies, our business momentum remains strong," said Stephen P. Holmes, chairman and CEO. "Our teams have continued to execute against our strategic and operating plans; we continued to return cash to shareholders through dividends and share repurchases; and we have positioned our businesses for future growth."
Fourth quarter EBITDA from continuing operations was $174 million, compared with $308 million in the prior-year period, reflecting asset impairments and separation costs recorded in fourth quarter 2017. Adjusted EBITDA from continuing operations was $320 million, compared with $305 million in the fourth quarter of 2016, an increase of 5%. Results primarily reflect the growth in revenues along with cost containment efforts, partially offset by $16 million of hurricane impacts. The Company's results have been adjusted to reflect the classification of the European vacation rentals business as a discontinued operation.
As previously reported, weather events in the third quarter had an unusually pronounced effect on fourth quarter operating results. The Company estimates that the third quarter hurricanes reduced fourth quarter revenues, net income and EBITDA by $15 million, $10 million, and $16 million, respectively. The reductions primarily reflect the temporary closure of vacation ownership sales centers, particularly in the Caribbean, and remediation efforts at the Company's Wyndham Rio Mar hotel in Puerto Rico.
FULL-YEAR 2017 OPERATING RESULTS
Full-year revenues from continuing operations were $5.1 billion, up 3% compared with the prior year.
Full-year net income from continuing operations was $819 million compared with $545 million in the prior year. Diluted earnings per share from continuing operations was $7.89, versus $4.93 in the prior year. The growth in earnings is primarily due to the tax benefit recorded as a result of the recently enacted Tax Cuts and Jobs Act, partially offset by impairment expenses and separation costs.
Full-year adjusted net income from continuing operations was $570 million or $5.50 per diluted share, compared with $569 million or $5.15 per diluted share in 2016. Adjusted results exclude items as detailed in Tables 7 and 8 of this press release. The growth in revenues was offset by higher year-over-year interest, depreciation and variable compensation expenses along with the impact of the third quarter hurricanes. The growth in adjusted diluted EPS primarily reflects the Company's repurchase of 6% of its outstanding shares in 2017.
Full-year 2017 EBITDA from continuing operations was $952 million, compared with $1,197 million in 2016, primarily reflecting asset impairments and separation costs. Adjusted EBITDA from continuing operations was $1,256 million, compared with $1,239 million in the prior year. The increase in adjusted EBITDA primarily reflects the growth in revenues, partially offset by $26 million of hurricane impacts.
The Company estimates that the third quarter weather events reduced full-year revenues, net income and EBITDA by $28 million, $17 million and $26 million, respectively. The reductions primarily reflect the temporary closure of vacation ownership sales centers, particularly in the Caribbean, and remediation efforts at Company's Wyndham Rio Mar hotel in Puerto Rico.
For the twelve months ended December 31, 2017, net cash provided by operating activities from continuing operations was $880 million, compared with $846 million in the prior year. The increase primarily reflects higher net income.
Free cash flow from continuing operations was $727 million in 2017, compared with $686 million for the prior year, primarily reflecting the changes in net cash provided by operating activities. Total free cash flow (from continuing and discontinued operations) was $799 million in 2017, compared with $782 million in 2016. The Company defines free cash flow as net cash provided by operating activities less capital expenditures.
FOURTH QUARTER 2017 BUSINESS UNIT RESULTS
Revenues increased 5% to $332 million in the fourth quarter of 2017, compared with $316 million in fourth quarter 2016. Results reflect higher royalties and franchise fees as well as higher pass-through marketing, reservation and Wyndham Rewards revenues.
EBITDA was $55 million in the fourth quarter compared with $99 million in the prior-year quarter, primarily due to $41 million of impairment expense related to a hotel management contract and the write-down of other intangible assets in 2017. Adjusted EBITDA was $102 million compared with $99 million in the prior-year period, primarily reflecting the revenue increases, partially offset by the adverse impact of Hurricane Maria on the Company's owned hotel in Puerto Rico.
Fourth quarter domestic RevPAR increased 4.5% compared with fourth quarter 2016. In constant currency, global RevPAR increased 4.6%.
As of December 31, 2017, the Company's hotel system consisted of over 8,400 properties and approximately 728,200 rooms, a 4% increase compared with a year earlier, including almost 12,000 rooms we added to the system with the acquisition of AmericInn in October. The development pipeline increased to nearly 1,160 hotels and 148,200 rooms, a 7% year-over-year room increase, of which 58% are international and 68% are new construction.
This segment no longer includes the Company's European vacation rentals business, which is now classified as a discontinued operation. Revenues were $200 million in the fourth quarter of 2017, compared with $190 millionin the fourth quarter of 2016, an increase of 5%. Exchange revenue per member increased 7%, driven by favorable pricing, while the average number of members declined 1%.
EBITDA was $40 million compared with $39 million in the fourth quarter of 2016, reflecting $8 million of separation costs. Adjusted EBITDA was $48 million compared with $39 million in the prior-year period, an increase of 23%, primarily reflecting favorable pricing as well as cost-saving initiatives.
Revenues were $734 million in the fourth quarter of 2017, compared with $705 million in the fourth quarter of 2016, an increase of 4%. The increase reflects a 7% increase in gross VOI sales, despite the negative impact of the hurricanes on VOI sales, as well as higher consumer financing revenues.
Tour flow increased 7%, driven by increased tours to new owners. Volume per guest (VPG) increased 2%
EBITDA was $133 million in the fourth quarter of 2017 compared with $182 million in the prior-year quarter, reflecting a $65 million asset impairment directly attributable to the recent hurricanes and their continuing effects on the Caribbean. Adjusted EBITDA was $200 million compared with $191 million in the prior-year quarter. Results reflect higher gross VOI sales and consumer financing revenue, partially offset by a higher provision for loan losses.
- La Quinta Acquisition - The Company recently announced its intention to purchase La Quinta Holdings' hotel franchising and hotel management operations for $1.95 billion in cash. The transaction will add nearly 900 managed and franchised hotels to our Hotel Group's portfolio and is expected to close in the second quarter of 2018.
- Corporate Tax Reform - The Company recorded a one-time, net tax benefit of $426 million, primarily driven by a reduction in its net deferred tax liability due to the lower corporate tax rate as a result of the Tax Cuts and Jobs Act of 2017.
- Impairment Charges - Non-cash impairment charges totaled $106 million in the fourth quarter of 2017. The charges are for the write-down of VOI inventory along with property and equipment at our Vacation Ownership business due to the impact of the third quarter hurricanes, the write-down of a guarantee asset and a note receivable related to a hotel management agreement, and the write-down of certain intangible assets in our Hotel Group business.
- Share Repurchases - The Company repurchased 1.4 million shares of common stock for $150 million during the fourth quarter of 2017 at an average price of $110.06. Over the course of 2017, the Company repurchased 6.3 million shares of stock, or 6% of shares outstanding, at a cost of $601 million. From January 1 through February 13, 2018, the Company repurchased an additional 0.2 million shares for $21 million.
- Dividend Increase - The Company's Board of Directors authorized an increase in the quarterly cash dividend to $0.66 from $0.58 per share, beginning with the dividend that is expected to be declared in the first quarter of 2018.
- Upcoming Separation - As previously announced, the Company plans to become two publicly traded hospitality companies through the spin-off of the Company's Hotel Group to shareholders. The process is proceeding as planned, and the Company expects to complete the separation in the second quarter of 2018.
Note to Editors: The Company has classified its European vacation rentals business, for which it is exploring strategic alternatives, as a discontinued operation and is therefore excluded from the outlook below. In addition, the outlook excludes possible future share repurchases. Current analysts' estimates include projections of the European vacation rentals business and often include projected share repurchases. These factors result in discrepancies between the Company's projections and database consensus forecasts.
The Company projects the following results for full-year 2018:
- Revenues of $5.26 billion to $5.40 billion, an increase of 4% to 6%.
- An effective tax rate applicable to adjusted pretax earnings of approximately 25%.
- Adjusted net income from continuing operations of $702 million to $722 million, an increase of 23% to 27%, approximately 19 points of which is due to a lower effective tax rate.
- Adjusted EBITDA of $1.330 billion to $1.355 billion, which represents year-over-year growth of 6% to 8% and is comprised of:
- Hotel Group adjusted EBITDA growth of 7% to 9%
- Destination Network adjusted EBITDA growth of 1% to 5%
- Vacation Ownership adjusted EBITDA growth of 6% to 8%
- Adjusted diluted EPS from continuing operations of $6.90 to $7.05, which is an increase of 25% to 28% and is based on a diluted share count of 101.7 million.
These projections exclude the impact of the La Quinta acquisition and the financing thereof, exclude any impact from our European vacation rentals business, which is treated as a discontinued operation, exclude costs associated with the Company's planned separation into two separate publicly-traded companies and are consistent with our historical recognition of revenues, without adjustment for the required 2018 change in revenue recognition accounting. See Table 12 for detailed projections, available via this link:http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Mzk4NTc2fENoa...
In determining adjusted net income, adjusted EBITDA and adjusted EPS, the Company excludes certain items which are otherwise included in determining the comparable GAAP financial measures. A description of the adjustments that have been applicable for the reported periods in determining adjusted net income, adjusted EBITDA and adjusted EPS are reflected in Tables 7 and 8, available via this link: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Mzk4NTc2fENoa.... The Company is providing an outlook for net income, EBITDA and EPS only on a non-GAAP basis because the Company is unable to predict with reasonable certainty the totality or ultimate outcome or occurrence of these adjustments or other potential adjustments that may arise in the future during the outlook period, which can be dependent on future events that may not be reliably predicted.
CONFERENCE CALL INFORMATION
Wyndham Worldwide Corporation will hold a conference call with investors to discuss the Company's results and outlook on Wednesday, February 14, 2018 at 8:30 a.m. ET. Listeners can access the webcast live through the Company's website athttp://www.wyndhamworldwide.com/investors/. The conference call may also be accessed by dialing 800-895-1549 and providing the passcode WYNDHAM. Listeners are urged to call at least 10 minutes prior to the scheduled start time. An archive of this webcast will be available on the website for approximately 90 days beginning at 12:00 p.m. ET on February 14, 2018. A telephone replay will be available for approximately 10 days beginning at 12:00 p.m. ET on February 14, 2018 at 800-839-1320.
PRESENTATION OF FINANCIAL INFORMATION
Financial information discussed in this press release includes non-GAAP measures, which include or exclude certain items. These non-GAAP measures differ from reported GAAP results and are intended to illustrate what management believes are relevant period-over-period comparisons and are helpful to investors as an additional tool for further understanding and assessing the Company's ongoing operating performance. Exclusion of items in the Company's non-GAAP presentation should not be considered an inference that these items are unusual, infrequent or non-recurring. Full reconciliations of GAAP results to the comparable non-GAAP measures for the reported periods appear in the financial tables section of the press release.
ABOUT WYNDHAM WORLDWIDE
Wyndham Worldwide (NYSE: WYN) is one of the largest global hospitality companies, providing travelers with access to a collection of trusted hospitality brands in hotels, vacation ownership, and unique accommodations including vacation exchange and managed home rentals. With a collective inventory of over 22,000 places to stay across 110 countries on six continents, Wyndham Worldwideand its 39,000 associates welcome people to experience travel the way they want. This is enhanced by Wyndham Rewards®, the Company's award-winning guest loyalty program across its businesses, which is making it simpler for members to earn more rewards and redeem their points faster. For more information, please visit www.wyndhamworldwide.com.
This press release contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those that convey management's expectations as to the future based on plans, estimates and projections at the time Wyndham Worldwide makes the statements and may be identified by terminology such as "will," "expect," believe," "plan," "anticipate," "goal," "future," "outlook," guidance," "target," "estimate" and similar expressions. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Wyndham Worldwide or the post-spin companies to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements contained in this press release include statements related to the Company's revenues, earnings, taxes, cash flow and related financial and operating measures, dividends, share repurchases, acquisitions, dispositions and expectations with respect to the spin-off and related transactions, as well as the post-spin companies' future operating, financial and business performance.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Factors that could cause actual results to differ materially from those in the forward-looking statements include general economic conditions, the performance of the financial and credit markets, the economic environment for the hospitality industry, the impact of war, terrorist activity or political strife, operating risks associated with the hotel, vacation exchange and rentals and vacation ownership businesses, differences between the actual impact of recently enacted corporate tax reform and our current expectations, uncertainties that may delay or negatively impact the spin-off or cause the spin-off to not occur at all, uncertainties related to the post-spin companies' ability to realize the anticipated benefits of the spin-off, uncertainties related to Wyndham Worldwide's ability to successfully complete the spin-off on a tax-free basis within the expected time frame or at all, unanticipated developments that delay or otherwise negatively affect the spin-off, uncertainties related to Wyndham Worldwide's ability to obtain financing for the two companies or the terms of such financing, unanticipated developments related to the impact of the spin-off on our relationships with our customers, suppliers, employees and others with whom we have relationships, unanticipated developments resulting from possible disruption to our operations resulting from the proposed spin-off, the potential impact of the spin-off and related transactions on Wyndham Worldwide's credit rating, uncertainties relating to Wyndham Worldwide's exploration of strategic alternatives for its European vacation rentals business and the outcome and timing of that process, uncertainties relating to Wyndham Worldwide'spending acquisition of La Quinta Holdings' hotel franchising and hotel management operations and the outcome and timing of that process, the timing and amount of future share repurchases and dividends, as well as those factors described in Wyndham Worldwide's Annual Report on Form 10-K, filed with the SEC on February 17, 2017, and in Wyndham Worldwide's subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Except for Wyndham Worldwide's ongoing obligations to disclose material information under the federal securities laws, it undertakes no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.