The most recent earnings report released by hospitality-franchisor Wyndham Hotels and Resorts (NYSE:WH) is quite a bit stronger than it first appears on a cursory glance. The company issued third-quarter 2019 results on Tuesday and exhibited progress on several fronts, despite a drop in revenue per unit.

As we unpack the outcomes of the last three months, note that all comparable numbers refer to those of the prior-year quarter.

Wyndham results: The condensed view

Metric Q3 2019 Q3 2018 Change
Revenue $560 million $604 million (7.3%)
Net income $45 million $58 million (22.4%)
Diluted earnings per share $0.47 $0.58 (19%)

Data source: Wyndham Hotels and Resorts.

Essential details from the quarter

Seen from behind, a woman relaxes on a wicker chair facing the water at an upscale beach resort.

Image source: Getty Images.

  • Royalties and franchise fees rose 1.4%, to $140 million, while marketing, reservation, and loyalty income improved by 10.6%, to $167 million.
  • The decrease in Wyndham's total top line was due to lower-cost reimbursements revenue, which has an equal, offsetting expense line on the income statement and thus doesn't affect the company's adjusted earnings before income, taxes, depreciation, and amortization (EBITDA) calculation. After removing this item, Wyndham's remaining revenue categories -- royalties and franchise fees; marketing, reservation, and loyalty income; hotel management; licensing; and other revenues -- together increased by 3.6% against the prior-year period.
  • RevPAR (revenue per available room) declined by 3%, to $46.94, paced by a 1% dip in U.S. RevPAR, with the balance due to foreign-currency translation. 
  • Wyndham added 157 properties year over year, ending with 9,213 properties at the end of Q3 2019. This translates to an addition of 23,500 rooms -- or 3% growth -- for a quarter-end total of 821,800 active rooms systemwide.
  • The organization's development pipeline increased by a healthy 7%, to 190,000 rooms.
  • Net income declined primarily from a previously announced termination of an unprofitable hotel management contract -- Wyndham booked a charge of $34 million related to the termination this quarter. 
  • Despite the lower unit revenue as evidenced by the RevPAR metric, Wyndham's adjusted EBITDA rose 14%, to $190 million.
  • As it had previously projected, the company reached a run rate of $68 million in annual cost synergies during the third quarter, resulting from its acquisition of La Quinta Inns in May 2018.
  • Wyndham repurchased $75 million worth of its own shares during the quarter and $168 million of its common stock in the first nine months of 2019.

What management had to say

Wyndham is currently engaged in a multiyear effort to refresh its brands and properties. The franchisor is gradually elevating its overall brand perception via fresh investment in its economy and mid-scale segments. During the company's earnings conference call, CEO Geoff Ballotti discussed brand enhancements introduced at the company's recent global hotelier conference in Las Vegas:

In the upper mid-scale segment, we introduced Arbor, a new interior and exterior prototype to our rapidly expanding Wyndham Garden brand, offering a modern look that creates a natural serenity experience for guests at a reduced cost per key [i.e. room] for developers. The addition of Arbor, coupled with La Quinta's award-winning Del Sol prototype, gives developers two new low-cost and high-return upper-mid-scale development options. And for the extended stay segment, Hawthorn Suites' new dual-branded prototype with La Quinta attached continues to attract significant attention from interested franchisees... Overall, our conference proved to be a tremendous success for our franchise sales teams for whom it was a great opportunity, not only to sign incremental contracts, but also to generate new development leads.

Outlook revisions heading into year-end

Wyndham provided investors with a mixed bag of earnings-related tweaks in advance of the final quarter of 2019. The company lowered its full-year global RevPAR growth outlook from 1% to a range of negative 1% to 0%, reflecting the third-quarter's RevPAR weakness. Management also shaved the top end of Wyndham's 2019 revenue target, replacing a band of $2.05 million-$2.08 million with a new expectation of $2.05 million-$2.06 million.

On the earnings front, adjusted net income is now slated to fall between $311 million and $318 million, an increase from the previous mark of $308 million-$315 million. Similarly, management anticipates that adjusted earnings per share (EPS) will hit a range of $3.21-$3.28 versus the previous envelope of $3.16-$3.23. This marks the second consecutive quarter of higher full-year EPS estimates.

Investors in this consumer discretionary stock have generally rewarded its improving earnings outlook: Shares have appreciated 17% year to date.