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Choice Hotels (CHH) Q3 Earnings Beat, Revenues Lag Estimates

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Choice Hotels International, Inc. (CHH - Free Report) reported mixed results in third-quarter 2018, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.

Adjusted earnings of $1.24 outpaced the consensus mark of $1.15 by 7.8% and increased 31% from the year-ago quarter. With this, the company has topped earnings estimates for the third straight quarter. Notably, the bottom line was aided by the company’s core franchising operations and an effective tax rate.

Total revenues came in at $291.5 million, which fell short of the consensus mark of $324 million but increased 8% from the year-ago. The top line lagged the estimate for the third consecutive quarter.

Increased demand for lodging along with Choice Hotel’s continual expansion strategies through acquisitions and franchise agreements has led to the company’s top- and bottom-line growth on a year-over year basis.
Backed by a strong brand presence, shares of Choice Hotels have gained 5.9% against the industry’s 14% decline in the past year.

Let’s delve deeper into numbers.

Franchising & Royalties Details

Hotel franchising revenues improved 9% in the third quarter. Adjusted EBITDA from hotel franchising activities increased 11% from the prior-year quarter to $135.4 million. However, adjusted hotel franchising margins contracted 30 basis points (bps) year over year to 74.6%.

Domestic royalty fees amounted to $105 million, marking an 8% increase year over year. Meanwhile, domestic system-wide RevPAR declined 1.4% year over year. While average daily rates (ADR) moved up 0.9%, occupancy decreased 160 bps from the prior-year quarter. Weather, hotel renovations and the timing of holidays impacted the company’s RevPAR in the third quarter.

As of Sep 30, 2018, the number of domestic franchised hotels and rooms increased 6.8% and 9.6%, respectively.

Choice Hotels International, Inc. Price, Consensus and EPS Surprise

 

Operating Results

In the reported quarter, total operating expenses summed $180.3 million, up 2% from the third quarter of 2017. Operating income increased 19% to $111.2 million. Net income totaled $80 million, up 40% year over year.

Balance Sheet

Cash and cash equivalents at the end of the third quarter were $30.9 million compared with $235.3 million as of Dec 31, 2017.

Long-term debt as of Sep 30, 2018, was $781.4 million, up from $725.3 million as of Dec 31, 2018. Goodwill, as a percentage of total assets, at the end of the third quarter was 15%, up from 8.1% at the end of 2017.

By the end of the third quarter of 2018, Choice Hotels paid cash dividends of nearly $37 million. Based on the current quarterly dividend rate of 21.5 cents per share of common stock, the company expects to pay dividends worth approximately $49 million in 2018. Meanwhile, management repurchased roughly $109 million shares of common stock under its share repurchase program during the first nine months of 2018.

Fourth-Quarter Guidance

For the fourth quarter, earnings per share (EPS) are anticipated to be 78-85 cents. Domestic RevPAR is expected to increase in the range of 1-3%.

Raises 2018 EPS Outlook

For 2018, Choice Hotels expects EPS to be $3.79-$3.86, up from the earlier guidance of $3.71-$3.77. Adjusted EBITDA is expected to be between $335 million and $340 million.

Net domestic unit growth is expected to be in the 7-8% band. Domestic RevPAR is expected to grow between 1% and 2%.

Zacks Rank & Peer Releases

Choice Hotels currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hyatt (H - Free Report) posted mixed third-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate while revenues lagged the same. Adjusted earnings of 33 cents per share outpaced the consensus estimate of 25 cents by 32%. The bottom line also grew 37.5% on a year-over-year basis.

Hilton (HLT - Free Report) reported mixed third-quarter 2018, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Hilton’s adjusted earnings of 77 cents per share surpassed the consensus estimate by a couple of cents and surged 38% on a year-over-year basis.

Extended Stay America (STAY - Free Report) reported better-than-expected earnings for the fourth straight quarter in third-quarter 2018. Adjusted earnings came in at 39 cents per share, outpacing the Zacks Consensus Estimate of 38 cents. The bottom line also grew 11.4% year over year on a drop in effective tax rate as well as lower depreciation and general and administrative expenses. Share repurchases too boosted earnings.

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