WYNDHAM WORLDWIDE $76.89 (New York symbol WYN; TSINetwork Rating: Extra Risk) (973-753-6000; www.wyndhamworldwide.com; Shares outstanding: 107.8 million; Market cap: $8.3 billion; Dividend yield: 2.6%) is one of the world’s largest hospitality companies, with 7,930 franchised hotels around the world.
The company also manages vacation resorts, rental properties, luxury clubs and timeshares. It currently has around 112,000 vacation-rental properties in 100 countries.
In the three months ended September 30, 2016, Wyndham’s revenue was virtually unchanged at $1.6 billion from a year earlier. The lack of growth was due to price competition in international markets and a higher U.S. dollar. Earnings fell 1.4%, to $207.0 million from $210.0 million; that’s mostly due to higher taxes and depreciation expenses.
Share buybacks boost per-share earnings
The company continues to buy back its stock, including the 2.1 million shares it repurchased for $150 million in the latest quarter. That’s why per-share earnings before onetime items rose 6.2%, to $1.89 from $1.78.
Wyndham continues to expand quickly with its purchase of resorts and hotels in fast-growing markets such as India. It also aims to acquire more hotels in Latin America and the Asia-Pacific region.
The company’s recent buys have increased its goodwill and intangible assets to $2.7 billion, or 33% of its market cap. That leaves it vulnerable to writedowns if demand for vacation travel falls.
Wyndham Worldwide is a hold.
TEMPUR SEALY $66.09 (New York symbol TPX; TSINetwork Rating: Extra Risk) (800-878-8889; www.tempursealy.com; Shares outstanding: 57.9 million; Market cap: $3.8 billion; No dividends paid) produces and distributes mattresses and neck pillows made of its patented memory foam, Tempur.
Tempur Sealy’s earnings rose 11.3% in the three months ended September 30, 2016, to $77.8 million from $69.9 million a year earlier. Per-share earnings rose 18.9%, to $1.32 from $1.11 on fewer shares outstanding.
Overall sales in the quarter fell 5.4%, to $832.4 million from $880.0 million a year earlier. North American sales (80% of the total) dropped 5.8%. International sales (20%) fell 3.5%, but on a constant-currency basis, they rose 1.8%.
New CEO faces big challenges
Profits rose despite the lower sales because the company’s new CEO and chairman, Scott L. Thompson, continues to lower costs. That has improved profit margins.
Tempur’s long-term prospects are sound, and its chief executive brings a new perspective. However, the company’s long-term debt of $1.7 billion is a high 45% of its market cap.
As well, it still faces strong competition from increasingly popular online retailers. Those competitors offer a limited (and so, cost-effective) range of foam mattresses at fixed prices. As part of their service, they compress and ship their mattresses in suitcase-sized boxes.
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