NEW YORK Cendant Corporation (NYSE: CD - news) today reported third quarter 2000 results.
“The diversity of our operations allowed us to exceed expectations in the third quarter,” said Cendant Chairman, President and Chief Executive Officer, Henry R. Silverman. “Strong performances in several business units, coupled with effective cost controls, offset more modest results in other areas. We continue to take an active, disciplined approach in pursuing potential strategic transactions to increase revenue and earnings growth. We remain comfortable with the range of full year earnings per share estimates of $1.02 to $1.05.”
Third Quarter Division Results
The underlying discussion of each division’s operating results focuses on revenues and EBITDA. EBITDA is defined as earnings before non-operating interest, income taxes, depreciation, amortization and minority interest. Adjusted results exclude net gains and losses on disposition of businesses and other items that are of a non-recurring or unusual nature. In the third quarter of 2000, management responsibility for Cendant Travel, our business unit that facilitates travel arrangements for our travel and membership business units, was shifted to our Travel segment. Accordingly, the results of Cendant Travel have been included within the Travel segment. Prior to third quarter 2000, Cendant Travel was included within the Individual Membership segment. The historical financial results presented for the Travel and Individual Membership segments have been restated to reflect the change. (See Table 4 for Revenues and Adjusted EBITDA by Segment and Table 6 for Segment Revenue Driver Analysis.) All dollar amounts are in millions.
Travel 2000 1999 % change
Revenues $ 344 $ 335 3%
Adjusted EBITDA $ 165 $ 164 1%
Adjusted EBITDA Margin 48% 49%
Franchise fees rose primarily as a result of room growth and a higher average daily rate in Lodging and increased car rental volume at Avis. Timeshare subscription and exchange revenues also increased, primarily as a result of increased memberships, increased transaction volume and higher fees per transaction. Results include reductions due to the timing and allocation of certain revenues and expenses. Excluding non-recurring reductions, revenues increased 6% and Adjusted EBITDA increased 10% in third quarter 2000 over third quarter 1999.
Real Estate Division
Real Estate Franchise 2000 1999 % change
Revenues $ 162 $ 161 1%
EBITDA $ 119 $ 124 (4%)
EBITDA Margin 73% 77%
Revenues increased slightly as a reduction in home sale volume was offset by an increase in the average price of homes sold by our franchisees. While our results reflected soft industry-wide conditions early in the quarter, we continued to add franchised brokerages to our CENTURY 21, COLDWELL BANKER and ERA brands. The volume of annual commission revenue added by our core franchise sales in third quarter 2000 was 10% higher than in third quarter 1999. On the other hand, growth was moderated by modestly declining volume and significantly reduced acquisition activity at our largest franchisee, NRT Incorporated. The EBITDA reduction includes higher corporate overhead allocations due to a refinement of allocation methods and also reflects increased costs for enhanced franchisee training programs.
Relocation 2000 1999 % change
Revenues $ 127 $ 117 9%
EBITDA $ 49 $ 42 17%
EBITDA Margin 39% 36%
Revenues and EBITDA increased primarily from additional sales of outsourcing services, higher international services fees and increased referral fees. These results reflect a continuing trend from asset-based to service-based fees. During the third quarter, we signed 42 new accounts and expanded 44 existing business relationships, including an award from the U.S. Department of Defense representing 14,000 annual household goods moves. Additionally we expanded our international presence through the acquisition of two relocation firms, Hamilton Watts International in Australia and Bradford and Bingley Relocation Services in the U.K.
Mortgage 2000 1999 % change
Revenues $ 132 $ 114 16%
EBITDA $ 74 $ 59 25%
EBITDA Margin 56% 52%
Revenues from mortgage loans closed increased $18 million during the quarter due to favorable production margins. Total mortgage closings were $6.5 billion, equal to the third quarter of 1999. Originations consisted of $6.1 billion in purchase mortgages (up 5%) and $400 million in refinance mortgages (down 41% due to the significant industry-wide refinancing activity in 1999). Mortgage closings from our Internet business (Log In - Move In) were $183 million in third quarter 2000 compared with $73 million in third quarter 1999. During the quarter, we entered into new outsourcing arrangements with four banking organizations bringing the total to twelve for the year for this unique service capability.
Direct Marketing Division
Individual Membership 2000 1999 % change
Revenues $ 185 $ 261 (29%)
Adjusted EBITDA $ 43 $ 48 (10%)
Adjusted EBITDA Margin 23% 18%
Revenues decreased primarily as a result of the 1999 dispositions of certain businesses. Excluding the operations of such disposed businesses, on a comparable basis, revenues decreased 8% and Adjusted EBITDA decreased 10%. Since revenues are recorded upon expiration of annual memberships, the net decline in revenues and EBITDA primarily reflects fewer annual memberships expiring in third quarter 2000 than in third quarter 1999. The decline was partially offset by a favorable mix of products and programs with marketing partners.
Insurance/Wholesale 2000 1999 % change
Revenues $ 145 $ 143 1%
EBITDA $ 48 $ 48—
EBITDA Margin 33% 34%