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Hospitality company Travel + Leisure (NYSE:TNL) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 3.8% year on year to $985 million. It made a GAAP profit of $1.81 per share, improving from its profit of $1.25 per share in the same quarter last year.
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Travel + Leisure (TNL) Q2 CY2024 Highlights:
- Revenue: $985 million vs analyst estimates of $987.2 million (small miss)
- EPS: $1.81 vs analyst estimates of $1.42 (27.5% beat)
- Gross Margin (GAAP): 53%, up from 48.8% in the same quarter last year
- Free Cash Flow of $153 million, up from $30 million in the previous quarter
- Conducted Tours: 192,000, up 22,000 year on year
- Market Capitalization: $3.52 billion
Formerly known as Wyndham (NYSE:WH) Destinations, Travel + Leisure (NYSE:TNL) is a global vacation company that provides travelers with vacation ownership, exchange, and travel services.
Hotels, Resorts and Cruise LinesHotels, 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.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Travel + Leisure struggled to generate demand over the last five years as its sales were flat. This is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or emerging trend. Travel + Leisure's annualized revenue growth of 5.4% over the last two years is above its five-year trend, but we were still disappointed by the results.
We can dig further into the company's revenue dynamics by analyzing its number of conducted tours, which reached 192,000 in the latest quarter. Over the last two years, Travel + Leisure's conducted tours averaged 17.4% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see the company's monetization has fallen.
This quarter, Travel + Leisure grew its revenue by 3.8% year on year, and its $985 million of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 4.5% over the next 12 months.
Cash Is King Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Travel + Leisure has shown mediocre cash profitability over the last two years, putting it in a pinch as it gave the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin averaged 8.6%, subpar for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Travel + Leisure to make cash investments in working capital (i.e., stocking inventories) and capital expenditures (i.e., building new facilities).
Travel + Leisure's free cash flow clocked in at $153 million in Q2, equivalent to a 15.5% margin. This quarter's result was good as its margin was 6.4 percentage points higher than in the same quarter last year, but we wouldn't read too much into it because working capital and capital expenditure needs can be seasonal, leading to quarter-to-quarter swings. Long-term trends carry greater meaning.
Over the next year, analysts predict Travel + Leisure's cash profitability will improve. Their consensus estimates imply its free cash flow margin of 9.9% for the last 12 months will increase to 14.4%, giving it more money to invest.
Key Takeaways from Travel + Leisure's Q2 Results We were impressed by how significantly Travel + Leisure blew past analysts' EPS expectations this quarter. On the other hand, the number of tours it conducted fell short of estimates, but it seemed to benefit from some pricing this quarter given its revenue only slightly missed. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock remained flat at $49.38 immediately after reporting.
