‘Green shoots’ for Wyndham in the Midwest

PARSIPPANY, New Jersey — With negative RevPAR news for Wyndham Hotels & Resorts in the second quarter, the company pointed to “green shoots” in the Midwest as a sign of optimism for the future.

Global RevPAR declined 3% YOY, including a 4% decline in the U.S., for Wyndham, which released its second-quarter earnings late Wednesday. The company said the Q2 RevPAR results included approximately 150 basis points of unfavorable impacts from the timing of Easter and the 2024 solar eclipse. Excluding those impacts, U.S. RevPAR would have declined approximately 2.3% YOY.

President and CEO Geoff Ballotti pointed to that normalized RevPAR performance in Midwest and industrial states in the second quarter compared to March, with some states up double digits: Oklahoma (11.1%) and Missouri (10.7%) and others in the high single digits like Pennsylvania (5.6%), Ohio (3.9%), Wisconsin (3.8%), Minnesota (3.1%) and Michigan (3%). He said that the strength has continued into July so far (see chart below).

“We’re seeing strength RevPAR-wise in states like Wisconsin, Michigan, Minnesota, Missouri, all indicating steady demand from our blue-collar everyday travelers,” he said during the company’s earnings call on Thursday. “The softness is more leisure-focused in those large Sun Belt and border states.”

While the demand shift happened quickly, Ballotti said there’s plenty of room for optimism, especially as global trade tensions lessen and consumer sentiment improves.

“We’re not seeing anything structurally that concerns us. Pricing is holding steady. ADR, year-over-year, was essentially flat in the quarter, and is up 17% [compared] to 2019, which is trailing inflation by a full seven points,” he said. “We’re not seeing any trade-down opportunities for impact. The gaps between those chain scales continue to strengthen, with little signs of discounting or compression.”

We’re seeing strength RevPAR-wise in states like Wisconsin, Michigan, Minnesota, Missouri, all indicating steady demand from our blue-collar everyday travelers. The softness is more leisure-focused in those large Sun Belt and border states.

Geoff Ballotti

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Ballotti cited STR data that the ADR gap for between economy and upper midscale in Q1 was $50 and is now over $65. Similarly, the $80 gap between upper midscale and upper upscale also increased.

“Our booking lead times of late are essentially flat to last year. The average length of stay is consistent with last year and is up about 3% [compared] to pre-COVID,” he said. “Our cancellation rates have improved somewhat over the last year by about 60 basis points.”

Wyndham also likes what it is hearing from its customers, Ballotti said, even in the economy segment, which has been struggling more than others.

“Economy is still humming,” he said. “Our guests are more employed. They have healthy balance sheets and household incomes that continue to strengthen each month… We run internal research on our guests that points towards more optimism on travel intent and less concern about economic worries than both last year and even last month.”

A subject that Ballotti has been vocal about in recent years is the significant business opportunity associated with government infrastructure spending. After efforts slowed with the change in presidential administrations, he said Wyndham is seeing some “re-acceleration,” especially in the Midwest.

“Our infrastructure room rates that are contracted, we’re seeing them pick up. They’re up about three times what the consumed is and that’s business on the books that’s pacing ahead,” he said, noting that some of the “green shoots” he referenced in the earnings call were because of increased infrastructure spending.

We believe that those national priorities continue to crystallize and that business should pick up. The priority now appears to be certainly faster, faster highway projects starts and faster bridge and transportation starts.

Geoff Ballotti

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“We believe that those national priorities continue to crystallize and that business should pick up,” he said. “The priority now appears to be certainly faster, faster highway projects starts and faster bridge and transportation starts.”

Another area of emphasis for the company is data center construction, which is experiencing significant growth. Ballotti said his team has identified 150 planned data center projects within a 15-mile radius of a Wyndham hotel. 

“They’re hunting these projects using a combination of reporting and technology and networking with contractors,” he said. “We continue to view this as a great multi-year tailwind for our hotels, our owners and our sales teams.”

Wyndham touted its systemwide rooms growth of 4% year-over-year as part of its Q2 earnings. The company said its development pipeline grew 1% sequentially and 5% YOY to a record high. Through Q2, the company’s pipeline consisted of approximately 2,150 hotels and 255,000 rooms, reflecting 6% growth in the U.S. pipeline and 4% growth internationally. Approximately 70% of the pipeline is in the midscale and above segments, which grew 5% YOY. Approximately 18% of its pipeline is in extended-stay, while 58% is international. In addition, approximately 76% of the pipeline new construction has just over a third of those projects already broken ground.

What the analysts said

Analyst Michael Bellisario of R.W. Baird said the overall update for the company was less bad than feared, and the earnings were a beat due to better other revenues.

“We viewed the earnings setup as a likely ‘less bad’ update, and that is exactly what Wyndham printed,” he said. “While RevPAR growth contracted more than expected, 2Q25 earnings upside was meaningful versus Baird/Street expectations and came from higher other revenues (i.e., credit card fees); full-year earnings guidance was unchanged as well.”

Analyst Patrick Scholes of Truist Securities said that while the company’s revenue growth is not huge, it is still “in the right direction.”

“While the actual quality of the earnings beat was not amazing, still growing adjusted EPS 11% year-over-year on -3% RevPAR growth was impressive,” he said. “We see the vast majority of the beat from relatively lower quality items such as market, reservation and loyalty plus other revenues as the more important line item of royalties and franchise fees came in line with consensus expectations.”

Other Q2 results

• Internationally, RevPAR results were driven by continued pricing power and offset by a decline in occupancy. Wyndham saw robust performance in EMEA (+7%), Latin America (+18%) and Canada (+7%) while China decreased 8% YOY with a decline in occupancy and pricing pressure.
• As part of a recent operational review, Wyndham said it identified violations of its Super 8 master license agreement in China and issued a notice of default to the master licensee. The company stated that starting this quarter, it has revised its reporting methodology to exclude the impact of all rooms (approximately 67,300 rooms through Q1) due to “the operational challenges of obtaining accurate information from this master licensee and the uncertain outcome of the compliance process.”
• Wyndham also adjusted its full-year 2025 outlook, notably increasing year-over-year room growth from 3.6-4.6% to 4-4.6%. RevPAR (-2%-1%), fee-related and other revenues ($1.45-1.49 billion), adjusted EBITDA ($730-745 million) and adjusted net income ($358-372 million) were unchanged.
• Wyndham awarded 229 development contracts globally, an increase of 40% YOY.
• Ancillary revenues increased 19% YOY.
• Diluted earnings per share increased 6% YOY to $1.13; adjusted diluted EPS grew 18% to $1.33, or 11% on a comparable basis.
• Net income increased 1% YOY to $87 million; adjusted net income increased 13% to $103 million, or 7% on a comparable basis.
• Adjusted EBITDA increased 10% YOY to $195 million, or 5% on a comparable basis.
• Wyndham returned $109 million to shareholders through $77 million of share repurchases and quarterly cash dividends of $0.41 per share. 
• The company generated $70 million of net cash provided by operating activities and $88 million of adjusted free cash flow and ended the quarter with a cash balance of $50 million and approximately $580 million in total liquidity.