Choice Hotels Reports Third Quarter 2008 Diluted EPS of $0.57, Domestic Unit Growth of 6.0%
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Choice Hotels Reports Third Quarter 2008 Diluted EPS of $0.57, Domestic Unit Growth of 6.0%
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Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2008-10-29
Today reported the following highlights for third quarter 2008:
-- Diluted earnings per share ("EPS") for third quarter 2008 were $0.57, compared to $0.59 for the same period of the prior year.
-- Adjusted diluted EPS for the nine months ended September 30, 2008 were $1.36, a 5% increase compared to $1.30 in the same period of the prior year. Diluted EPS were $1.30 for the nine months ended September 30, 2008 compared to $1.26 for the same period of 2007. Adjusted diluted EPS for the nine months ended September 30, 2008 excludes a $3.8 million after-tax charge (approximately $0.06 diluted EPS) resulting from the previously announced acceleration of the Company's management succession plan. Adjusted diluted EPS for the nine months ended September 30, 2007 excludes a $2.3 million after-tax charge (approximately $0.04 diluted EPS) resulting from termination benefits for certain executive officers.
-- Earnings before interest, taxes and depreciation ("EBITDA") were $63.9 million for third quarter 2008, compared to $64.5 million for third quarter 2007. Operating income for third quarter 2008 was $61.9 million compared to $62.4 million for third quarter 2007.
-- Adjusted earnings before interest, taxes and depreciation ("Adjusted EBITDA") increased 4% to $152.8 million for the nine months ended September 30, 2008, compared to $147.2 million for the same period of 2007. Operating income for the nine months ended September 30, 2008 was $140.5 million compared to $137.1 million for the same period of 2007. Adjusted EBITDA for the nine months ended September 30, 2008 excludes a $6.1 million charge resulting from the acceleration of the Company's management succession plan. Adjusted EBITDA for the nine months ended September 30, 2007 excludes a $3.7 million charge resulting from termination benefits for certain executive officers.
-- Domestic unit and room growth increased 6.0 percent and 5.4 percent, respectively, since September 30, 2007.
-- Domestic system-wide revenue per available room (RevPAR) declined 1.6% for third quarter 2008 compared to the same period of the prior year. The decrease was due to a 280 basis point decline in occupancy, which was partially offset by a 2.7% increase in average daily rate.
-- The effective royalty rate increased 7 basis points to 4.19% for the three months ended September 30, 2008 compared to 4.12% for the same period of the prior year.
-- Franchising revenues increased 1% and total revenues increased 9% for third quarter 2008 compared to the same period in 2007. Year to date franchising revenues and total revenues increased 6% and 9%, respectively, compared to the same period of 2007.
-- Executed 160 new domestic hotel franchise contracts during the third quarter of 2008 compared to 182 for third quarter 2007. Overall, year to date, new domestic hotel franchise contracts executed increased 5% to 491 compared to 469 in the same period of the prior year.
-- The number of domestic hotels under construction, awaiting conversion or approved for development increased 10% from September 30, 2007 to 955 hotels representing 76,269 rooms; the worldwide pipeline increased 13% from September 30, 2007 to 1,074 hotels representing 85,916 rooms.
"The fundamental resiliency of Choice's business model was evident in our third quarter results, as the company grew its franchising revenues and once again demonstrated robust domestic unit and room growth during a period marked by significant industry-wide occupancy declines," said Stephen P. Joyce, president and chief executive officer. "As we continue to face an uncertain economic environment, we are confident that our unrelenting focus on our franchisees' profitability, aided by Choice's strong centralized support systems will position us well to achieve continued long-term profitable growth. We also anticipate benefitting from hotel developers' interest in our portfolio of conversion brands, which are appropriate for the various stages of a hotel asset's long lifecycle. We remain focused on executing our strategy of increasing domestic market share, strengthening our brands, and returning value to our shareholders."
Outlook for 2008
The uncertainty around the current economic environment and credit market conditions and their impact on travel patterns and hotel development activities makes it difficult to predict future results, particularly as it relates to underlying assumptions for RevPAR, new hotel franchise and relicensing sales and interest and investment income and expense.
The company's fourth quarter 2008 diluted EPS is expected to be $0.40. The company expects full year 2008 adjusted diluted EPS of $1.76. Adjusted EBITDA for full-year 2008 are expected to be approximately $197.5 million. These estimates include the following assumptions:
-- The company expects net domestic unit growth of approximately 5.5% in 2008;
-- RevPAR is expected to decline approximately 6% for fourth quarter 2008 and decline approximately 1.5% for full-year 2008;
-- The effective royalty rate is expected to increase 6 basis points for full-year 2008;
-- All figures assume the share count as of October 27, 2008 and an effective tax rate of 36.25% for fourth quarter 2008 and 37% for full year 2008;
-- All figures exclude a $6.1 million charge ($3.8 million after-tax and approximately $0.06 diluted EPS) resulting from the previously announced acceleration of the Company's management succession plan.
Use of Free Cash Flow
The company has consistently used its free cash flow (cash flow from operations less capital expenditures) to return value to shareholders, primarily through share repurchases and dividends.
The annual dividend rate per common share was increased 9 percent by the Board of Directors in September and is now $0.74. During the nine months ended September 30, 2008, the company paid $31.6 million of cash dividends to shareholders.
The company did not repurchase any shares under it share repurchase program during the three and nine months ended September 30, 2008. Subsequent to September 30, 2008 and through October 27, 2008, the Company repurchased 0.5 million shares at a total cost of $12.6 million at an average price of $23.06 per share. The company has authorization to purchase up to an additional 2.6 million shares under the share repurchase program. We expect to continue making repurchases in the open market and through privately negotiated transactions, subject to market and other conditions. No minimum number of share repurchases has been fixed. Since Choice announced its stock repurchase program on June 25, 1998, the company has repurchased 39.1 million shares of its common stock for a total cost of $908.5 million through October 27, 2008. Considering the effect of a two-for-one stock split in October 2005, the company has repurchased 72.1 million shares under the share repurchase program at an average price of $12.60 per share.
Our Board has authorized us to enter into programs which permit us to offer financing, investment and guaranty support to qualified franchisees to incent multi-unit franchise development in top markets. We expect to opportunistically deploy this capital over the next several years. Our current expectation is that our annual investment in these programs would range from $20 to $40 million beginning in 2009 (2008 investment in these programs is not expected to be significant), depending on market and other conditions. In addition to these programs, the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, also subject to market and other conditions.
Conference Call
Choice will conduct a conference call on Tuesday, October 28, 2008 at 9:30 a.m. EDT to discuss the company's third quarter results. The dial-in number to listen to the call is 1-800-230-1085. International callers should dial 612-288-0329. The conference call also will be Webcast simultaneously via the company's Web site, http://www.choicehotels.com. Interested investors and other parties wishing to access the call via the Webcast 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 either http://www.choicehotels.com or by calling 1-800-475-6701 and entering access code 962339 beginning at 11:30 a.m. EDT on October 28, 2008 and will remain available through November 28, 2008. The international dial-in for the replay is 320-365-3844, access code 929522.
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