Choice Hotels Reports Second Quarter 2007 Diluted EPS of $0.43, Domestic Unit Growth of 5.1%
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Choice Hotels Reports Second Quarter 2007 Diluted EPS of $0.43, Domestic Unit Growth of 5.1%
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Category: Worldwide -
This is a press release selected by our editorial committee and published online for free on 2007-07-26
Choice Hotels International, Inc., (NYSE: CHH) today reported the following highlights for the second quarter 2007:
* Diluted earnings per share ("EPS") for second quarter 2007 increased 19% to $0.43 compared to $0.36 in the same period of the prior year. Operating income for second quarter 2007 increased 12% to $47.4 million compared to $42.1 million for second quarter 2006.
* Earnings before interest, taxes and depreciation ("EBITDA") were $49.5 million for second quarter 2007, an increase of 11% compared to $44.7 million for second quarter 2006.
* Domestic units increased 5.1 percent from June 30, 2006.
* Domestic system-wide revenue per available room (RevPAR) increased 3.3% for the second quarter of 2007 compared to the same period of the prior year. Domestic RevPAR for the company's mid-scale without food and beverage brands (Comfort Inn, Comfort Suites and Sleep Inn), which represents approximately half of the company's domestic rooms online, increased 4.8% for the second quarter of 2007, with average daily rate increasing 5.3% for those brands.
* Executed 176 new domestic hotel franchise contracts during the second quarter of 2007, an increase of 14% compared to 155 for second quarter 2006, with new construction contracts comprising 39% of executed agreements. Overall, year-to-date, new domestic hotel franchise contracts executed increased 4% to 287 compared to 275 in the same period of the prior year.
* The number of domestic hotels under construction, awaiting conversion or approved for development increased 25% to 858 hotels representing 67,740 rooms; the worldwide pipeline also increased 25% to 943 hotels representing 75,747 rooms.
* Executed first direct franchise agreements in Canada for Cambria Suites and MainStay Suites brands, with contracts for two Cambria Suites hotels to be developed in the Toronto metropolitan area and agreements for four MainStay Suites hotels to be developed in Ontario and Alberta.
* Executed 11 new hotel franchise contracts for the Cambria Suites brand, including the two Canadian hotels, during the second quarter of 2007, with sixty hotel franchise contracts executed since the brand's launch in 2005. During the quarter, the company executed a contract for a 300-room Cambria Suites hotel in Brooklyn, the brand's largest property currently under contract.
* Franchising revenues and total revenues both increased 12% for second quarter 2007 compared to the same period of the prior year. Year-to- date franchising revenues and total revenues have increased 9% and 10%, respectively, compared to the same period of 2006.
* Franchising margins for the second quarter of 2007 were 62.9% compared to 62.6% for the second quarter of 2006. Year to date franchising margins were 57.9% compared to 61.1% for the same period of 2006. Franchising margins for the six months ended June 30, 2007 reflect the impact of $3.7 million of termination benefits for certain executive officers in the first quarter of 2007. Franchising margins for the second quarter 2007 and year-to-date period ended June 30, 2007 also reflect the commencement of direct franchising operations in continental Europe.
* Interest and other investment income increased $1.9 million for second quarter 2007 compared to the same period of the prior year due to favorable performance of employee benefit plan investments.
* The company purchased approximately 0.7 million shares of its common stock at an average price of $38.72 for a total cost of $28.3 million under its share repurchase program during the second quarter 2007. Year-to-date through July 24, 2007, the company purchased approximately 1.5 million shares of its common stock at an average price of $38.60 for a total cost of $57.8 million under its share repurchase program.
"We continue to work closely with our franchisees to improve their unit profitability by driving incremental business to their hotels and providing them with targeted services and support to enhance property-level operating performance," said Charles A. Ledsinger, Jr., vice chairman and chief executive officer. "At the same time, we are committed to continuously improving brand quality and consistency by working collaboratively with our franchisees so that we are positioned to gain market share. This operating philosophy has proven successful for Choice, as over the last five years, we have increased our domestic market share of branded hotels by 350 basis points to nearly 17% of the market, as measured by room supply in the midscale & economy segments."
Items Affecting Comparability
Fourth Quarter 2006 Acquisition of Continental Europe Franchising Operations
During the fourth quarter of 2006, the company terminated the master franchising agreement covering continental Europe and acquired the direct franchising operations in this region from the former master franchisor. As a result of the acquisition, franchising revenues and selling, general and administrative costs for the three months ended June 30, 2007 increased approximately $1.1 million and $0.7 million, respectively, compared to second quarter 2006. Franchising revenues and selling, general and administrative costs for the six months ended June 30, 2007 increased approximately $1.8 million and $1.6 million, respectively, compared to the same period in 2006.
Outlook for 2007
The company's third quarter 2007 diluted EPS is expected to be at least $0.52. The company expects full year 2007 diluted EPS of $1.62. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for full-year 2007 is expected to be approximately $187.5 million. These estimates include the following assumptions.
* The company expects net domestic unit growth of approximately 4% in 2007;
* RevPAR is expected to increase approximately 4.5% for third quarter 2007 and approximately 4% for full-year 2007;
* The effective royalty rate is expected to increase 3 basis points for full-year 2007;
* All figures assume the existing share count and an effective tax rate of 36.3% for third quarter 2007 and 36.5% for full year 2007;
* All figures assume approximately $3.7 million ($0.03 diluted EPS) of termination benefits expense resulting from the previously announced separations of certain executive officers.
Use of Free Cash Flow
The company has consistently used its free cash flow (cash flow from operations less capital expenditures) generated from its operations to return value to shareholders, primarily through share repurchases and dividends.
For the three and six months ended June 30, 2007, the company paid $9.9 million and $19.8 million, respectively, of cash dividends to shareholders. The annual dividend rate per common share is $0.60.
For the three months ended June 30, 2007, the company purchased approximately 0.7 million shares of its common stock at an average price of $38.72 for a total cost of $28.3 million under its share repurchase program. For the six months ended June 30, 2007, the company purchased approximately 1.2 million shares of its common stock at an average price of $38.33 for a total cost of $46.1 million. At June 30, 2007, the company had authorization to purchase up to an additional 3.9 million shares under the share repurchase program. Repurchases will continue to be made in the open market and through privately negotiated transactions subject to market and other conditions. No minimum number of shares has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 34.8 million shares of its common stock for a total cost of $758 million through June 30, 2007. Considering the effect of a two-for-one stock split in October 2005, the company has repurchased 67.8 million shares under the share repurchase program at an average price of $11.17 per share. Subsequent to June 30, 2007 through July 24, 2007, the Company has repurchased an additional 0.3 million shares of its common stock at a total cost of $11.8 million.
The company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, subject to market and other conditions.
Conference Call
Choice will conduct a conference call on Wednesday July 25, 2007 at 9:30 a.m. EDT to discuss the company's second quarter results. The call-in number to listen to the call is 1-888-423-3273. International callers should dial 612-332-0923. The conference call also will be Web cast simultaneously via the company's Web site, www.choicehotels.com. Interested investors and other parties wishing to access the call on the Web should go to the Web site and click on the Investor Info link. The Investor Information page will feature a conference call microphone icon to access the call.
The audio of the call will be archived and available on www.choicehotels.com beginning at 1:00 p.m. EDT on July 25 and will be available through August 25 by calling 1-800-475-6701, access code 877036. International callers should dial 320-365-3844 and enter access code 877036.
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