Wyndham Worldwide Corp (WYN)

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Wyndham Worldwide (WYN)

Q4 2011 Earnings Call

February 08, 2012 8:30 am ET

Executives

Margo C. Happer - Senior Vice President of Investor Relations

Stephen P. Holmes - Chairman, Chief Executive Officer and Chairman of Executive Committee

Thomas G. Conforti - Chief Financial Officer and Executive Vice President

Analysts

Joseph Greff - JP Morgan Chase & Co, Research Division

Carlo Santarelli - Deutsche Bank AG, Research Division

Charles Patrick Scholes - FBR Capital Markets & Co., Research Division

Christopher Agnew - MKM Partners LLC, Research Division

Amanda Bryant - Susquehanna Financial Group, LLLP, Research Division

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Harry Curtis - Nomura Securities Co. Ltd., Research Division

Michael Millman - Millman Research Associates

Presentation

Operator

Welcome to the Wyndham Worldwide Fourth Quarter and Full-Year 2011 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. And I would now like to turn the call over to Margo Happer, Senior Vice President of Investor Relations. You may begin.

Margo C. Happer

Thank you. Good morning. 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. This information is subject to a number of risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our Form 10-Q filed October 26, 2011, with the SEC. We will also be referring to a number of non-GAAP measures. The reconciliation of these measures to GAAP is provided in the tables to the press release. It is also available on the Investor Relations of our website at wyndhamworldwide.com. Steve?

Stephen P. Holmes

Thank you, Margo. Good morning, everyone, and thanks for joining us and welcome to our 2011 year-end call. It was a great year for Wyndham Worldwide. We produced adjusted EBITDA growth of 13% and adjusted EPS growth of 25%. We generated over $750 million of free cash flow and over $1 billion in available cash. These results and our long term earnings and cash flow outlook give us confidence to raise our dividend by 53%. This increase is consistent with our policy of growing our dividend, at least at the rate of growth of our business.

During 2011, we repurchased 17% of our outstanding shares for $902 million, buying 28.7 million shares at an average price of $31.45. Since our launch as a public company in August 2006, we have repurchased 65 million shares for $2 billion at an average price of just under $31. Operationally, we continue to execute against our strategic initiatives throughout our company. At Wyndham Hotel Group, Apollo, our series of initiatives aimed at improving our value proposition to our hotel owners, is well underway and we are seeing measurable success, which I will discuss in a moment. At Wyndham Exchange and Rentals, our RCI team delivered yet another series of technology upgrades to our web capability, increasing customer satisfaction, online share and operating margins. We also made significant progress growing our North American rentals platform with the integration of ResortQuest, exceeding our expectations. And we continue to achieve record efficiency levels at Wyndham Vacation Ownership with margins up over 250 basis points and an EBITDA increase of 17% for the year.

Before going into 2001 (sic) [2011] results, let me spend a few minutes on what we're seeing in the economy and within our sector. Despite many macro twists and turns in 2011, the geographic and demographic diversity of our businesses and the resiliency of our fee-for-service business models provided a stable base for us to grow. We expect that also to be the case in 2012. In 2011, hotel industry demand hit a new all-time high, with more room nights sold than ever before. However, rates charged for hotel rooms have not recovered to pre-2009 levels. The net is that RevPAR improved during 2011 and we believe this positive trend should continue in 2012.

According to a study conducted by Atmosphere Research Group in October, while only 29% of U.S. travelers favorably viewed their 2011 financial condition, 43% believe their finances will be better in 2012. And travelers who expect their finances to improve outnumber those who are pessimistic about their finances by more than 2 to 1. Most travelers expect to take the same number of trips, which is 7 on average, in 2012 as they did in 2011. They also expect to spend about the same amount of money on travel as last year, which is about $3,200. This is consistent with the continuing, gradual recovery we foresee in our U.S. businesses, which contribute nearly 70% of our EBITDA. In the hotel group, we finished 2011 ahead of expectations and we expect a strong 2012 with RevPAR increases of 5% to 8%. In our Exchange and Rental business, 2011 was our first full year with ResortQuest and North American Vacation Rentals market. This business is running ahead of our plans, with great momentum carrying into 2012. RCI held its annual affiliate event in New York last month. The record attendance indicates that interest among timeshare developers is strong and growing. New sources of financing for the overall timeshare industry are still evolving, and the mood was more optimistic than I've seen in a long time. And of course, our own timeshare business continues to exceed expectations. Despite some significant dips in consumer confidence during the year, our timeshare owners continue to demonstrate the value they place on vacations with arrivals at our resorts reaching an all-time high. And our sales force demonstrated its ability to sell the product, as volume per guest also reached all-time highs. So in the U.S., we expect to see a continuing gradual improvement in the economy.

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