Hospitality company Travel + Leisure (NYSE:TNL) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 4.2% year on year to $916 million. It made a non-GAAP profit of $0.97 per share, improving from its profit of $0.89 per share in the same quarter last year.
Travel + Leisure (TNL) Q1 CY2024 Highlights:
- Revenue: $916 million vs analyst estimates of $904.5 million (1.3% beat)
- EPS (non-GAAP): $0.97 vs analyst estimates of $0.86 (12.5% beat)
- Full year adjusted EBITDA guidance maintained, midpoint of $920 million is in line with estimates
- Gross Margin (GAAP): 48.5%, up from 46% in the same quarter last year
- Free Cash Flow of $22 million, down 81.7% from the previous quarter
- Tours: 155,000
- Market Capitalization: $3.28 billion
Formerly known as Wyndham Destinations, Travel + Leisure (NYSE:TNL) is a global vacation company that provides travelers with vacation ownership, exchange, and travel services.
The company's expansive portfolio includes its flagship vacation ownership business, operating under brands such as Club Wyndham, WorldMark by Wyndham, and Margaritaville Vacation Club. These brands offer a network of resort properties in desirable destinations across the United States, the Caribbean, and the Pacific.
Travel + Leisure's timeshare vacation ownership model allows customers to own or have rights to use a property for a specified period each year. In addition, the company’s vacation exchange network, RCI, allows timeshare owners to swap their owned weeks or points for stays at other properties within its global network, offering flexibility and variety in vacation planning.
Travel + Leisure has also expanded into travel services and membership programs through its acquisition of Travel + Leisure Group in 2021 (the company also inherited the acquiree's name). This division focuses on delivering travel services and products beyond the timeshare market by providing subscription travel clubs, online travel booking platforms, and branded consumer products, enhancing the company’s reach in the broader leisure travel market.
Hotels, Resorts and Cruise Lines
Hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.
Travel + Leisure's competitors include Hilton Grand Vacations (NYSE:HGV), Marriot Vacations (NYSE:VAC), Bluegreen Vacations (NYSE:BXG), Interval Leisure Group (NASDAQ:IILG), and private companies Diamond Resorts and Anantara Vacation Club.Sales Growth
Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Travel + Leisure's revenue was flat over the last five years. 
Within consumer discretionary, a long-term historical view may miss a company riding a successful new property or emerging trend. That's why we also follow short-term performance. Travel + Leisure's annualized revenue growth of 6.9% over the last two years is above its five-year trend, suggesting some bright spots.
We can dig even further into the company's revenue dynamics by analyzing its number of tours, which reached 155,000 in the latest quarter. Over the last two years, Travel + Leisure's tours averaged 19.1% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see the company's monetization of its consumers has fallen. 
This quarter, Travel + Leisure reported reasonable year-on-year revenue growth of 4.2%, and its $916 million of revenue topped Wall Street's estimates by 1.3%. Looking ahead, Wall Street expects sales to grow 4.4% over the next 12 months, an acceleration from this quarter.
Operating Margin
Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Travel + Leisure has been a well-managed company over the last eight quarters. It's demonstrated it can be one of the more profitable businesses in the consumer discretionary sector, boasting an average operating margin of 18.9%.In Q1, Travel + Leisure generated an operating profit margin of 16.4%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.
Over the next 12 months, Wall Street expects Travel + Leisure to maintain its LTM operating margin of 19.3%.EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability and efficiency of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Over the last five years, Travel + Leisure's EPS grew 17.3%, translating into a weak 3.2% compounded annual growth rate. This performance, however, is materially higher than its flat revenue over the same period. There are a few reasons for this, and understanding why can shed light on its fundamentals.
While we mentioned earlier that Travel + Leisure's operating margin was flat this quarter, a five-year view shows its margin has expanded 1.1 percentage points while its share count has shrunk 24%. Improving profitability and share buybacks are positive signs as they juice EPS growth relative to revenue growth.In Q1, Travel + Leisure reported EPS at $0.97, up from $0.89 in the same quarter last year. This print beat analysts' estimates by 12.5%. Over the next 12 months, Wall Street expects Travel + Leisure to perform poorly. Analysts are projecting its LTM EPS of $5.82 to shrink by 4.3% to $5.57.
Cash Is King
If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Over the last two years, Travel + Leisure has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 7.5%, subpar for a consumer discretionary business.
Travel + Leisure's free cash flow came in at $22 million in Q1, equivalent to a 2.4% margin. This result was great for the business as it flipped from cash flow negative in the same quarter last year to cash flow positive this quarter. Over the next year, analysts predict Travel + Leisure's cash profitability will improve. Their consensus estimates imply its LTM free cash flow margin of 8% will increase to 12.1%.
Return on Invested Capital (ROIC)
EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to how much money the business raised (debt and equity).
Travel + Leisure's five-year average return on invested capital was 12.9%, somewhat low compared to the best consumer discretionary companies that pump out 25%+. Its returns suggest it historically did a subpar job investing in profitable business initiatives.
Key Takeaways from Travel + Leisure's Q1 Results
It was good to see Travel + Leisure beat analysts' revenue and EPS expectations this quarter. Full year EBITDA guidance was maintained, showing that the company is on track. This guidance was also in line with estimates, meaning no surprises. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is flat after reporting and currently trades at $46 per share.
Is Now The Time?
Travel + Leisure may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.
We cheer for all companies serving consumers, but in the case of Travel + Leisure, we'll be cheering from the sidelines. Its revenue has declined over the last five years, but at least growth is expected to increase in the short term. And while its strong operating margins show it's a well-run business, the downside is its projected EPS for the next year is lacking. On top of that, its EPS growth over the last five years has been subpar.
Travel + Leisure's price-to-earnings ratio based on the next 12 months is 8.3x. While there are some things to like about Travel + Leisure and its valuation is reasonable, we think there are better opportunities elsewhere in the market right now.
Wall Street analysts covering the company had a one-year price target of $51.95 per share right before these results (compared to the current share price of $46).
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