If you had bought shares of Wyndham Worldwide four years ago, you would be sitting pretty today. Since March 2009 the hospitality giant’s stock has grown more than 2,000%, and now trades around $60.
What accounts for the spectacular growth? The hospitality industry has recovered from the recession, for one. Also, about 60% of Wyndham’s revenues ($4.5 billion in 2012) is produced by fee-for-service businesses, and as a result the company generates strong free cash flow, which translates into rising dividends and share repurchases.
The company has three segments. Wyndham Hotel Group reaps royalties from some 7,400 franchised properties, including chains like Howard Johnson, Days Inn and Super 8. Wyndham Exchange and Rentals includes a time-share exchange business with 3.7 million fee-paying members. The third and largest segment, Wyndham Vacation Ownership, develops and acquires time-share resorts.
Given this diverse portfolio, “we have more levers to pull in managing our company,” says Tom Conforti. The 54-year-old CFO is comfortable pulling those levers. Before coming to Wyndham, Conforti was finance chief of DineEquity, franchisor of Applebee’s and IHOP restaurant chains. Earlier, he was CFO of the consumer products division at Walt Disney.
In August, Conforti talked with CFO about his work. “Wyndham is financially sophisticated, and it’s aligned around achieving financial goals,” he says. “So making a difference as a CFO is easier here than at most places.”
When you joined Wyndham in September 2009, the recession had just ended, and the company’s stock was trading in the teens. How did the situation look to you?
The worst part of 2008–2009 had passed, and there was light at the end of the tunnel. It was a period when the legitimacy of all business models were being tested, and each of our businesses demonstrated in that difficult time not only their legitimacy but also their very positive nature. The hotel business has been on a steady ascent. Our time-share exchange business continues to operate well. So does our vacation rental business, which is mostly in Europe.
Now Wyndham is riding high, with the stock trading around $60. The second quarter looked pretty good—revenues were up 10% from a year ago, adjusted earnings per share was up 13%. Are you happy with these results?
We’re very happy with our second-quarter performance. All of our businesses performed nicely. We were able to buy back $175 million of our stock. We generated a lot of free cash flow, comfortably above where we were last year.
How much free cash flow do you produce in a year?
We generate well over a billion dollars a year of what we call available cash, after capex and working capital. One of my biggest challenges is to help decide what’s the best way to spend it. It may sound a little odd, but it’s not easy to spend a billion dollars a year.
So how do you spend it?
In one of three ways: pay a dividend, buy back stock or engage in incremental M&A activity. Ourpolicy is to grow dividends at least at the rate of the growth of our business. Since I’ve joined the company we have tripled the dividend. So our dividend probably takes $150 million of the billion, billion-one dollars of available cash. That leaves us with around $900 million to spend between share repurchase and M&A. We like to do value-added M&A transactions if we can find them.