Choice Hotels Reports Record Results for Third Quarter 2006; Adjusted Diluted EPS Up 16%, New Domestic Hotel Franchise Contracts Up 24% Over Prior Year
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Choice Hotels Reports Record Results for Third Quarter 2006; Adjusted Diluted EPS Up 16%, New Domestic Hotel Franchise Contracts Up 24% Over Prior Year
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2006-10-30
Choice Hotels International, Inc., (NYSE: CHH) today reported the following highlights for the third quarter of 2006:
Adjusted diluted earnings per share (EPS) for the third quarter increased 16% to $0.50, compared to adjusted diluted EPS of $0.43 for the third quarter 2005. Diluted EPS for the third quarter 2006 was $0.69, compared to $0.48 for the same period in 2005.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased 14% to $56.9 million from $50.0 million in third quarter 2005.
Operating income increased 14% to $54.6 million, compared to $47.8 million for the same period in 2005.
New domestic hotel franchise contracts in the third quarter of 2006 increased 24% to 178 over the prior year.
Initial franchise and relicensing fees increased 34% for third quarter 2006.
Royalty revenues rose 11% and franchising revenues increased 13% for third quarter 2006.
Domestic system-wide RevPAR increased approximately 5% for the quarter and approximately 7% year-to-date. Domestic revenue per available room (RevPAR) for the Company's midscale without food and beverage brands increased approximately 7% for the quarter and approximately 10% year- to-date.
The domestic hotel pipeline of hotels under construction, awaiting conversion or approved for development increased more than 48% to 736 hotels representing 57,117 rooms; the worldwide pipeline increased 39% to 808 hotels representing 63,579 rooms.
Domestic unit growth increased 3.2% compared to third quarter 2005.
Five new contracts executed for the upscale Cambria Suites brand during the quarter, with 20 signed year-to-date and 33 since the brand was introduced in 2005.
"The strong growth we are seeing in domestic franchise contracts for both new construction and conversion hotels demonstrates that the demand for our brands is strong," said Charles A. Ledsinger, Jr., vice chairman and chief executive officer. "As a result, we remain confident in our ability to achieve our long-term growth objectives by leveraging the combined strength of our high-caliber management team, sound business strategies and brand-centric organization to benefit our shareholders, franchisees, hotel guests and associates."
Outlook for 2006
The company's fourth quarter 2006 diluted EPS is expected to be $0.34. The company expects full year 2006 adjusted diluted EPS of $1.47, which excludes the effect of the reversal of provisions for certain income tax contingencies and the loss on extinguishment of debt described below. The company's full year 2006 diluted EPS is expected to be $1.66. Earnings before interest, taxes, depreciation and amortization ("EBITDA") is expected to be $175 million. These estimates include the following assumptions.
The company expects net domestic unit growth of approximately 4% in 2006;
RevPAR is expected to increase 4.5% for fourth quarter 2006 and 5.5% for full-year 2006;
The effective royalty rate is expected to increase 2 basis points for full-year 2006;
All figures assume the existing share count, include stock-based compensation expense and assume an effective tax rate of 36.5% for fourth quarter 2006.
Adjusted Net Income and Diluted EPS
Net income and diluted earnings per share for the three and nine months ended September 30, 2006 include a reduction of income tax expense related to reversal of provisions for certain income tax contingencies of approximately $12.8 million and $12.6 million, respectively. Net income and diluted earnings per share for the nine months ended September 30, 2006 also include a loss of approximately $0.3 million ($0.2 million, net of the related tax effect) related to the extinguishment of debt. Those items represent diluted EPS of $0.19, net, for the three and nine months ended September 30, 2006. Adjusted diluted EPS and adjusted net income for the three and nine months ended September 30, 2006 exclude these items.
Net income and diluted earnings per share for the three and nine months ended September 30, 2005 include additional income tax expense of approximately $1.2 million related to the Company's plan to repatriate approximately $23.5 million of foreign earnings pursuant to the American Jobs Creation Act and a reduction of income tax expense related to the resolution of certain tax contingencies of approximately $4.9 million. Those items represent diluted EPS of $0.05, net, for the three and nine months ended September 30, 2005. Adjusted diluted EPS and adjusted net income for the three and nine months ended September 30, 2005 exclude these items.
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. This is primarily achieved through share repurchases and dividends.
For the nine months ended September 30, 2006, the company paid $25.5 million of cash dividends to shareholders. The annual dividend rate per common share was increased 15% by the Board of Directors in September and is now $0.60.
The company has authorization to purchase up to an additional 5.1 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 33.6 million shares of its common stock for a total cost of $711.9 million through October 30, 2006. Considering the effect of a two-for-one stock split in October 2005, the company has repurchased 66.6 million shares at an average price of $10.69 per share.
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 Tuesday, October 31, 2006, at 10 a.m. EST to discuss the company's third quarter 2006 results. The call-in number to listen to the call is 1-877-209-0397. International callers should dial 612-288-0329. The conference call also will be Web cast simultaneously via the company's Web site, http://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 http://www.choicehotels.com for those unable to listen to the call on October 31st. The call will also be available for replay until November 30, 2006, by calling 1-800-475-6701 (access code 842696). International callers should dial 320-365-3844 and enter access code 842696
Items Impacting Comparability
Acquisition of Suburban
During 2005, the company acquired Suburban Franchise Holding Company, Inc. ("Suburban"), which included 67 Suburban Extended Stay Hotel units open and operating in the United States. The results of operations for Suburban have been included in the company's results of operations since September 28, 2005.
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