Wyndham Worldwide Corporation Q1 2010 Earnings Call Transcript

Wyndham Worldwide Corporation Q1 2010 Earnings Call Transcript
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Wyndham Worldwide Corporation (WYN)

Q1 2010 Earnings Call

February 10, 2010 8:30 a.m. ET

Executives

Margo Happer – SVP, IR

Steve Holmes – CEO

Tom Conforti – CFO

Analysts

Joe Greff - JPMorgan

Chris Woronka - Deutsche Bank

Patrick Scholes - FBR Capital Markets

Steve Kent - Goldman Sachs

Presentation

Operator

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Welcome to the Wyndham Worldwide first quarter earnings conference call. (Operator Instructions) I would now like to turn the call over to Margo Happer, Senior Vice President of Investor Relations.

Margo Happer

Good morning and thank you for joining us. With me today are Steve Holmes, our CEO; and Tom Conforti, our CFO.

Before we get started, I just want to remind you that our remarks today contain forward-looking information that is subject to a number of risk factors that may cause our actual results to differ materially from those expressed or implied. These results are discussed in detail in our Form 10-K filed February 19, 2010, with the SEC.

We will also be referring to a number of non-GAAP measures. The reconciliation of these measures to the comparable GAAP measures is provided in the tables to the press release and is available on the Investor Relations section of our website at wyndhamworldwide.com.

Steve?

Steve Holmes

As you saw from the press release, we had a terrific quarter with each of the businesses performing at or ahead of plan. We delivered adjusted EPS of $0.34 above the high end of our $0.27 to $0.32 range.

Remember that we are comparing with first quarter 2009 which benefited from a roll in of $67 million of previously deferred vacation ownership revenues and approximately $31 million of associated EBITDA. Considering that headwind, first quarter 2009 comparisons are especially impressive. Excluding the 2009 roll in of deferred revenues and the favorable impact of foreign exchange, adjusted EBITDA increased by almost 20%.

Our continued strong execution and the momentum of the business give us confidence to raise our revenue, EBITDA and EPS guidance for the year.

Much of the upside is being driven by vacation ownership. As you know, beginning in the third quarter of 2008, we underwent a substantial restructuring to rightsize the vacation ownership business. We closed lower margin sales offices and cut less efficient marketing programs. Our focus is to optimize cash flow and efficiency rather than double-digit top-line growth.

The magnitude of the change was driven by the upheaval in the capital markets and our desire to be masters of our destiny by reducing our reliance on the ABS market. But the strategic intent, which we outlined in late 2007, was driven by our desire to focus more investment in our fee-for-service businesses.

The results are impressive. We had the best timeshare business in the world before the downturn, and the business we have today is even better. It's more profitable, more resilient, and it generates more cash. We have dramatically improved the quality of the consumer loans that we underwrite, resulting in a stronger portfolio. And we've made operational changes that simplify the accounting by eliminating the deferred revenue that make tracking the business difficult for some investors.

On this exceptionally strong base, we are building an add-on business model that will further improve the return profile of the business. Combine this with our fantastic fee-for-service business models, and I think you'll agree that Wyndham Worldwide is well positioned for growth.

In addition, the overall economy is clearly improving. The decline in RevPAR is moderating. And despite with the doomsday profits predicted, leisure travelers are active. The credit in ABS markets also continued to improve.

Throughout the downturn, we've proved the resiliency of our business models as well as our ability to execute. And we are confident that we'll capture more than our fair share of the recovery.

But we're more than a recovery story. We transformed our businesses to generate free cash flow in a sustainable range of $500 million to $600 million annually or about $3 per share per year. That's at least $2.5 billion of free cash flow over the next five years, and we are committed to using that cash to drive shareholder value.

We will return a portion directly to shareholders through increased dividends, and we'll use the remainder to supplement our earnings per share growth by first investing in the businesses for organic growth; second, making acquisitions of fee-for-service businesses in our industries; and finally, repurchasing stock, which is already underway.

Now I'd like to discuss the progress we're making in our strategic initiatives, starting with the Hotel Group. Our vision is to be the world's leading hotel company in size, customer value and performance. We believe that strong, well-supported brands and highly-motivated franchisees are a key to achieving our vision.

As I mentioned last quarter, we are sharpening our focus on execution to take this business to the next level. Similar to our efforts to transform the Exchange business over the last few years with RCI.com, the Hotel Group is launching a series of strategic initiatives, which we refer collectively to as Apollo, with the goal of driving incremental revenue to our franchisees and strengthening the value of our brands.

We will launch our first four missions in the near term, which involve: number one, improving the overall content of our hotel brands across all channels; number two, improving consumer conversion on our brand websites by enhancing navigation, content, rate availability and technology; three, enhancing and consolidating our reservation system; and four, optimizing rate information for our hotel owners through all distribution channels. I look forward to updating you on our progress as we proceed over the next 18 months.

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