Choice Hotels Reports Second Quarter 2009 Adjusted Diluted EPS of $0.44, Domestic Unit Growth of 4.8%
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Choice Hotels Reports Second Quarter 2009 Adjusted Diluted EPS of $0.44, Domestic Unit Growth of 4.8%
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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 2009-07-30
Choice Hotels International, Inc., (NYSE: CHH) today reported the following highlights for second quarter 2009:
* Adjusted diluted earnings per share ("EPS") for second quarter 2009 were $0.44, compared to $0.49 for the same period of the prior year. Diluted EPS were $0.42 for second quarter 2009 compared to $0.43 for second quarter 2008. Adjusted diluted EPS for second quarter 2009 and 2008 exclude certain special items, as described below, totaling $0.02 and $0.06, respectively.
* Excluding special items, adjusted earnings before interest, taxes and depreciation ("EBITDA") were $42 million for the three months ended June 30, 2009, compared to $53.1 million for the same period of 2008. Operating income for the three months ended June 30, 2009 was $38.1 million compared to $44.6 million for the same period of 2008.
* Adjusted selling, general and administrative ("SG&A") costs for the second quarter of 2009 totaled $25.2 million which represented a 10% decline from the same period of the prior year. Adjusted SG&A costs exclude special items totaling $1.9 million and $6.4 million for the three months ended June 30, 2009 and 2008, respectively.
* Domestic unit and room growth increased 4.8 percent and 4.5 percent, respectively, from June 30, 2008.
* Domestic system-wide revenue per available room ("RevPAR") declined 15.7% for the second quarter of 2009 compared to the same period of 2008.
* The effective royalty rate increased 6 basis points to 4.26% for the three months ended June 30, 2009 compared to 4.20% for the same period of the prior year.
* Franchising revenues declined 17% from $80.5 million for the three months ended June 30, 2008 compared to $66.9 million for the same period of 2009. Total revenues for the three months ended June 30, 2009 declined 14% compared to the same period of 2008.
* The company executed 118 new domestic hotel franchise contracts for the three months ended June 30, 2009, a decline of 40% compared to the 198 contracts executed in the same period of the prior year.
* The number of domestic hotels under construction, awaiting conversion or approved for development declined 17% from June 30, 2008 to 827 hotels representing 64,384 rooms; the worldwide pipeline declined 15% from June 30, 2008 to 937 hotels representing 73,121 rooms.
"Despite the extremely challenging industry-wide RevPAR environment and significant decline in domestic hotel transactions across the industry, the appeal of our brands, strong marketing and guest distribution platform, as well as our franchise sales expertise once again enabled us to achieve significant domestic unit and room growth." said Stephen P. Joyce, president and chief executive officer. "In this environment, our value-oriented brands position us well to serve travelers looking for ways to stretch their travel budgets. Additionally, on account of our conversion brands, we are particularly well positioned in this environment to increase our market share as the lodging cycle progresses. We also remain focused on returning value to our shareholders, and during the first half of 2009 we returned $57.2 million to shareholders through a combination of share repurchases and dividends."
Special Items
During the three and six months ended June 30, 2009, the company recorded employee termination benefits of approximately $0.4 million and $0.8 million, respectively. In addition, during the three months ended June 30, 2009, the company recorded a $1.5 million charge related to the sublease of a portion of its office space. These special items represent diluted EPS of $0.02 for both the three and six months ended June 30, 2009.
During the three and six months ended June 30, 2008, the company recorded employee termination benefits of approximately $0.3 million and $0.4 million, respectively. Furthermore, the company incurred $6.1 million of benefit costs during the three months ended June 30, 2008 resulting from the acceleration of the company's management succession plan. These special items represented diluted EPS of $0.06 for both the three and six months ended June 30, 2008.
Outlook for 2009
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 they relate to underlying assumptions for RevPAR, new hotel franchise and relicensing sales and interest and investment income and expense.
The company's third quarter 2009 adjusted diluted EPS is expected to be $0.51. The company expects full-year of 2009 adjusted diluted EPS of $1.66. Adjusted EBITDA for the full-year of 2009 are expected to be approximately $169 million. These estimates include the following assumptions:
* The company expects net domestic unit growth of approximately 3.25% in 2009;
* RevPAR is expected to decline approximately 15% for the third quarter of 2009 and decline approximately 13% for the full-year of 2009;
* The effective royalty rate is expected to increase 5 basis points for the full-year of 2009;
* All figures assume the existing share count and an effective tax rate of 36.5% for the third quarter and full-year of 2009;
* Adjusted EBITDA and adjusted diluted EPS for third quarter 2009 exclude $1.3 million ($0.8 million after tax and approximately $0.01 diluted EPS) of operating expenses related to employee termination benefits.
* Adjusted EBITDA and adjusted diluted EPS for full year 2009 exclude $3.6 million ($2.2 million after tax and approximately $0.04 diluted EPS) of operating expenses related to employee termination benefits and a loss on the sublease of office space.
Use of Free Cash Flow
The company has historically used its free cash flow (cash flow from operations less capital expenditures) to return value to shareholders, primarily through share repurchases and dividends.
For the six months ended June 30, 2009 the company paid $22.3 million of cash dividends to shareholders. The current quarterly dividend rate per common share is $0.185, subject to declaration by our board of directors.
For the three months ended June 30, 2009, the company purchased approximately 0.6 million shares of its common stock at an average price of $26.42 for a total cost of $16.8 million under the share repurchase program. For the six months ended June 30, 2009, the company purchased approximately 1.3 million shares of its common stock at an average price of $26.63 for a total cost of $34.9 million. Subsequent to June 30, 2009 and through July 29, 2009, the Company repurchased an additional 0.4 million shares at a total cost of $10.0 million at an average price of $26.24 and has authorization to purchase up to an additional 4.3 million shares under this 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 42.5 million shares of its common stock for a total cost of $995.4 million through July 29, 2009. Considering the effect of a two-for-one stock split in October 2005, the company has repurchased 75.5 million shares under the share repurchase program at an average price of $13.19 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 annual investment in these programs is dependent on market and other conditions. Notwithstanding these programs, 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.
Impact of the Adoption of New Accounting Pronouncements on Earnings Per Share
In June 2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position Emerging Issues Task Force No. 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 clarified that all share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders. Therefore, awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied rather than the treasury stock method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. In addition, once effective, all prior period earnings per share data presented must be adjusted retrospectively to conform to the provisions of FSP EITF 03-6-1.
The Company's outstanding unvested restricted stock awards contain rights to non-forfeitable dividends and as a result, the Company applied this guidance in the first quarter of 2009. The two-class method of calculating earnings per share is more dilutive to both basic and diluted shares outstanding than the previously utilized treasury stock method. In accordance with FSP EITF 03-6-1, the Company has retrospectively adjusted its basic and diluted shares outstanding for the three and six months ended June 30, 2008 under the two-class method which resulted in a reduction of the Company's basic and diluted earnings per share for the six months ended June 30, 2008 from $0.74 to $0.73 and $0.73 to $0.72 per share, respectively.
Conference Call
Choice will conduct a conference call on Thursday, July 30, 2009 at 10:00 a.m. EDT to discuss the company's second quarter results. The dial-in number to listen to the call is 1-800-599-9816, and the access code is 81224116. International callers should dial 1-617-847-8705 and enter the access code 81224116. The conference call also will be Webcast simultaneously via the company's Web site, 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 call will be recorded and available for replay beginning at 1:00 p.m. EDT on July 30, 2009 through August 30, 2009 by calling 1-888-286-8010 and entering access code 30288765. The international dial-in number for the replay is 617-801-6888, access code 30288765. In addition, the call will be archived and available on choicehotels.com via the Investor Info link.
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