1Q 2004 EPS Increased 40% to $0.42 Versus $0.30 in 1Q 2003
1Q 2004 Net Cash Provided By Operating Activities Was $830 Million
1Q 2004 Free Cash Flow Was $356 Million
Company Raises Its Projection of 2004 EPS to $1.69 - $1.74
Cendant Corporation (NYSE: CD - News) today reported record first quarter 2004 EPS of $0.42, versus $0.30 in first quarter 2003, an increase of 40%. The first quarter results exceeded the Company's most recent projection of $0.41 and its prior projection of $0.37 - $0.38. As previously announced, first quarter EPS included a one-time tax benefit of $0.10 per share related to the modification of our relationship with Trilegiant Corporation.
As a result of the Company's higher than anticipated first quarter results, Cendant tightened the range of its projection of EPS for full year 2004 to $1.69 - $1.74, representing year-over-year growth of 20% - 23%. The Company had previously raised its estimate on March 31, 2004 to $1.68 - $1.74 from $1.65 - $1.72. The Company also continues to forecast 2004 Net Cash Provided by Operating Activities of approximately $5 billion and Free Cash Flow of more than $2 billion.
Cendant's Chairman, Chief Executive Officer and President, Henry R. Silverman, stated: "We are very encouraged by our first quarter performance. Improving travel trends and continued strength in residential real estate, coupled with superb execution by our management team, enabled our business units to outperform our original expectations, and to overcome a significant negative year-over-year comparison in our Mortgage Services segment. The fundamental strength and diversity of our operations are readily apparent in the first quarter's results, which continued to demonstrate the growth of our businesses."
First Quarter 2004 Results of Reportable Segments
The following discussion of operating results focuses on revenue and EBITDA for each of our reportable operating segments. EBITDA is defined as net income before non-program related depreciation and amortization, non- program related interest, amortization of pendings and listings, income taxes and minority interest. EBITDA is the measure that we use to evaluate performance in each of our reportable operating segments in accordance with generally accepted accounting principles. Our presentation of EBITDA may not be comparable to similar measures used by other companies. Revenue and EBITDA are expressed in millions.
As previously announced, in order to improve the transparency of our financial results, beginning this quarter, we will report our mortgage and settlement services businesses, which were previously included in our former Real Estate Services segment, as one separate reportable segment, Mortgage Services. The information presented below for first quarter 2003 has been revised to reflect this change.
Real Estate Franchise and Operations
(Consisting of the Company's real estate franchise brands, brokerage operations and relocation services)
2004 2003 % change
Revenue $1,156 $985 17%
EBITDA $129 $113 14%
Revenue and EBITDA increased principally due to strong growth in royalties earned by our real estate franchise businesses and real estate brokerage commissions earned by NRT. Real estate franchise royalty and marketing fund revenue increased 14%, primarily due to a 12% increase in average price and a 7% increase in home sale transactions. Revenue generated by our NRT real estate brokerage business increased 21%, due to increases in both home sale transactions and average price.
Mortgage Services
(Consisting of mortgage services and settlement services)
2004 2003 % change
Revenue $238 $370 (36%)
EBITDA $8 $113 (93%)
As expected, revenue and EBITDA declined primarily due to substantially lower mortgage refinancing volumes and margins on securitized loan sales as compared to the high levels experienced in first quarter 2003. In addition, continuing low interest rates as compared with 2003 resulted in higher amortization and impairment of our mortgage servicing rights asset during the quarter, but also resulted in increased application volumes that will benefit mortgage production revenue in the second quarter. We expect that first quarter 2004 results will not be representative of our full year 2004 results and that year-over-year comparisons will improve significantly as the year progresses.
Hospitality Services
(Consisting of the Company's nine franchised lodging brands, timeshare exchange and timeshare sales and marketing, and vacation rental businesses)
2004 2003 % change
Revenue $681 $580 17%
EBITDA $168 $144 17%
Revenue and EBITDA increased primarily due to strong growth in our timeshare sales and exchange businesses. Timeshare sales revenue increased 25%, reflecting the benefit of marketing investments made in 2003, and timeshare exchange and subscription revenue increased 10%. Year-over-year comparisons were negatively impacted by the absence in first quarter 2004 of gain-on-sale accounting for the securitization of timeshare receivables. As previously announced, beginning in third quarter 2003, we no longer recognize gains on the securitization of timeshare receivables due to the consolidation of our principal timeshare securitization structure, which we believe has improved the transparency of our operating results. Instead, we recognize interest income from such receivables.
Travel Distribution Services
(Consisting primarily of electronic global distribution services for the travel industry and travel agency services)
2004 2003 % change
Revenue $452 $416 9%
EBITDA $124 $128 (3%)
Revenue increased primarily due to an 8% increase in Galileo booking fees and the March 2003 acquisition of Trip Network, Inc., which operates the rapidly growing on-line travel business of Cheap Tickets. Year-over-year EBITDA amounts are not comparable due to the acquisition of CheapTickets.com on March 31, 2003 (the operating results of which are included in first quarter 2004 but not in first quarter 2003). Excluding the acquisition of CheapTickets.com, the year-over-year comparison in first quarter 2004 would have been favorable. Moreover, we anticipate favorable year-over-year comparisons for the remainder of 2004.
Vehicle Services
(Consisting of vehicle rental, vehicle management services and fleet card services)
2004 2003 % change
Revenue $1,394 $1,357 3%
EBITDA $100 $50 100%
Revenue and EBITDA increased principally due to growth in our car rental businesses and our Wright Express fuel card management business. Avis benefited from a 2% increase in car rental day volume and a 5% increase in price. The significant increase in EBITDA reflects synergies from the successful integration of Budget, which is substantially complete.
Financial Services
(Consisting of individual membership products, insurance-related services, financial services enhancement products and tax preparation services)
2004 2003 % change
Revenue $526 $389 35%
EBITDA $177 $165 7%
Year-over-year revenue and EBITDA amounts are not comparable due to the consolidation of TRL Group (formerly Trilegiant Corporation) beginning on July 1, 2003, pursuant to FASB Interpretation No. 46. Revenue and EBITDA were positively impacted by growth in our Jackson Hewitt Tax Service business. EBITDA was negatively impacted by our resumption in February 2004 of marketing to solicit new members in our individual membership business pursuant to the modification of our relationship with TRL Group. We expect to realize revenue from these marketing expenses in future periods.
Corporate and Other
Revenue and EBITDA included a previously disclosed pretax gain of $33 million from the sale of Homestore, Inc. common stock in first quarter 2004, versus a previously disclosed $30 million gain from the sale of the Company's ownership interest in Entertainment Publications, Inc. in first quarter 2003.
Recent Achievements - Strategic Initiatives
During the first quarter, the Company made considerable progress toward its cash flow generation, debt reduction and share repurchase goals:
* Generated Net Cash Provided by Operating Activities of $830 million and
Free Cash Flow of $356 million. See Table 8 for a description of Free
Cash Flow and a reconciliation to Net Cash Provided by Operating
Activities.
* Reduced corporate debt, net of cash on the balance sheet, by $140
million (corporate debt excludes Debt under Management and Mortgage
Programs). As of March 31, 2004, the Company had $632 million of cash
and cash equivalents and $5.65 billion of corporate debt outstanding,
including $863 million of Upper DECS securities, which will
mandatorily convert to common stock in August 2004. See Table 6 for
more detailed information.
* Issued a notice to redeem on May 1, 2004 the approximately $310 million
of outstanding 11% Senior Subordinated Notes Due 2009.
* Utilized $405 million of cash for the repurchase of common stock, net
of proceeds from option exercises. This amount included the use of
cash that had been earmarked for redemption of our Zero Coupon Senior
Convertible Contingent Debt Securities ("CODES") to instead repurchase
common stock issued upon their conversion.
In addition, during the quarter, the Company:
* Paid its first-ever regular quarterly cash dividend of $0.07 per common
share.
* Filed a registration statement with the Securities and Exchange
Commission for the sale of 100% of its ownership interest in Jackson
Hewitt Tax Service Inc. in an initial public offering expected to take
place in the second quarter of 2004.
* Acquired the residential real estate brokerage operations of Sotheby's
International Realty and entered into a fifty-year licensing agreement
(renewable for an additional fifty-years) with Sotheby's.
* Amended its contractual relationship with Trilegiant Corporation, now
known as TRL Group Inc., and re-assumed responsibility for marketing
membership clubs, as well as servicing members.
Subsequent to March 31, 2004, the Company has:
* Acquired Australia-based Flairview Travel, a leading online hotel
distributor that specializes in the distribution of international
hotel content throughout Europe and the Asia Pacific region through
its merchant hotel brand, www.HotelClub.com, and its last-minute Web
site, www.RatesToGo.com.
2004 Outlook
The Company projects the following EPS for 2004:
Second Third Fourth Full
Quarter Quarter Quarter Year
2004 $0.42 - $0.44 $0.53 - $0.55 $0.33 - $0.35 $1.69 - $1.74(a)
2003(b) $0.37 $0.47 $0.28 $1.41
% Increase 14% - 19% 13% - 17% 18% - 25% 20% - 23%
(a) Includes the one-time tax benefit of $0.10 per share recorded in
first quarter 2004 related to the transaction with Trilegiant.
(b) 2003 amounts are for continuing operations only.
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