Cendant Corp. “is taking actions to reduce costs” at brokerage company subsidiary NRT Inc, “including consolidating offices,” according to an earnings announcement released Monday.

Revenue for Cendant’s real estate services division reached $1.62 billion in fourth-quarter 2005, up 3 percent from fourth-quarter 2004. But the company’s earnings before interest, taxes, depreciation and amortization (known as EBITDA) were down 7 percent in that time.

Home-prices increases increased 12 percent at Cendant’s real estate franchise business and 10 percent at NRT’s company-owned real estate offices in the fourth quarter, though there was a 5 percent decline in closed transaction sides at company-owned and franchise offices, the company reported.

The earnings reflect “the expected moderation of the residential real estate market, particularly in certain markets where NRT is concentrated such as the East and West coasts,” according to the earnings report, and to “higher fixed costs at NRT in the seasonally slow fourth quarter.”

Cendant also announced that first-quarter 2006 EBITDA, before separation costs, should be negative compared to first-quarter 2005 EBITDA for the real estate services division, and this could effect the company’s prior first-quarter earnings-per-share projection by about 3 cents to 5 cents. This real estate services division includes the company’s real estate franchise brands, brokerage operations, relocation services and settlement services businesses.

In addition to its real estate operations, the company also operates companies in the hospitality services, timeshare resorts, vehicle rental and travel distribution services industries.

For all of its divisions, Cendant Corp. reported that revenue Increased 7 percent to $4.3 billion in fourth-quarter 2005 vs. $4 billion in fourth-quarter 2004.

The company’s fourth-quarter earnings per share from continuing operations was a loss of 4 cents. Full-year 2005 revenue increased 9 percent to $18.2 billion in 2005 vs. $16.7 billion in 2004.

“The loss from operations in the fourth quarter reflects the impact of the previously disclosed impairment charge related to lower than previously forecasted results in the company’s travel distribution services businesses,” Cendant reported. Net Income increased to $537 million, versus $357 million in fourth quarter 2004.

Reported EPS from Continuing Operations was $0.82 ($1.28 as adjusted for specified items), and net income was $1.3 billion.

Cendant’s President and Chief Financial Officer, Ronald L. Nelson, said in a statement, “Each of our business segments individually generated organic revenue growth for the full year and, in total, our core reportable segments generated organic revenue growth of 5 percent for the fourth quarter and 8 percent for the full year. In addition, during 2005 we generated over $2 billion in free cash flow, and we returned over $2.5 billion in value to our shareholders, including over 70 percent of our free cash flow and the spin-off of PHH Corp.”

Nelson said the plan to split Cendant into four independent, publicly traded companies, is “now in the execution phase and (we) remain on track to complete the spin-offs of real estate services and hospitality in the second and third quarters of 2006, respectively, and the separation of travel distribution from vehicle services in October 2006.”

Cendant reported that the company’s open contracts have trended up in recent weeks, “which normally indicates that home sales should improve in the next few quarters.

“During January 2006, average home sale prices increased in the high single digit range, year-over-year, in our franchise and brokerage businesses, continuing the national trend of uninterrupted annual price increases that, according to government statistics, has existed since at least 1950. As a result, the company currently estimates that Real Estate Services’ revenue will increase and EBITDA (before separation costs) will be about unchanged for full year 2006 versus 2005.”

As a result of the reduced first quarter outlook for real estate services and vehicle services, the company now projects first quarter 2006 revenue growth from core operations of approximately 6 percent – 8 percent, an EBITDA decline from core operations (before separation costs) of 14 percent – 16 percent, and EPS from Continuing Operations of $0.11 – $0.16 (before separation costs).

Among the fourth-quarter accomplishments cited in the company’s earnings announcement:

  • Generated net cash provided by operating activities of $773 million and free cash flow of $445 million. For full-year 2005, the company generated net cash provided by operating activities of approximately $3.3 billion and free cash flow of approximately $2 billion.

  • Utilized $331 million of cash for the repurchase of common stock ($270 million net of proceeds from option exercises). For full year 2005, the company utilized $1.3 billion of cash for the repurchase of 68 million shares of its common stock ($1.1 billion net of proceeds from issuing 24 million shares in connection with option exercises).

  • Utilized $114 million of cash to pay its quarterly dividend of $0.11 per share. For full year 2005, the company utilized $423 million of cash to pay quarterly dividends. As previously announced, Cendant’s board of directors has approved for the payment of the company’s first quarter 2006 dividend of $0.11 per share, after which further cash dividends will be suspended for the remainder of 2006 due to the planned separation of Cendant into four independent, publicly traded companies.

For full year 2006, if Cendant had remained together, the company’s current expectation would be for high single-digit revenue growth and low single-digit EBITDA growth from core operations, excluding separation costs and the fourth quarter 2005 impairment charge at travel distribution services. The company plans to outline its full year 2006 projections for the four new companies at its Annual Investor Day scheduled for March 21.

Cendant will host a conference call to discuss the fourth-quarter results at 11 a.m. ET on Tuesday, Feb. 14. Investors may access the call live at www.cendant.com or by dialing (719) 457-2621. A Web replay will be available at www.cendant.com following the call. A telephone replay will be available from 2 p.m. ET on Feb. 14 until 8 p.m. ET on Feb. 21 at (719) 457-0820, access code: 3428907.


Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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