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Choice Hotels (CHH) Q4 Earnings Beat, Revenues Lag Estimates

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

Adjusted earnings of 88 cents per share outpaced the consensus mark of 83 cents by 6% and increased 29% from the year-ago quarter. With this, the company topped earnings estimates for the fourth straight quarter. Notably, the bottom line was aided by Choice Hotel’s core franchising operations.

Total revenues were $245 million, which lagged the consensus mark of $263 million but increased 10.6% from the year-ago. The top line lagged estimates for the fourth consecutive quarter.

Increased demand for lodging, along with Choice Hotel’s continual expansion strategies through acquisitions and franchise agreements, has led to top- and bottom-line growth on a year-over-year basis.

Backed by a strong brand presence, shares of Choice Hotels have gained 5.2% against the industry’s 2% decline in the past six months.


Let’s delve deeper into numbers.

Details of Franchising & Royalties

Hotel franchising revenues improved 13% in the fourth quarter. Adjusted EBITDA from hotel franchising activities increased 12% from the prior-year quarter to $77.5 million. However, adjusted hotel franchising margins contracted 320 basis points (bps) year over year to 67.1%.

Domestic royalty fees amounted to $80.3 million, marking a 10% year-over-year increase. Meanwhile, domestic system-wide RevPAR increased 0.7% year over year. While average daily rate (ADR) moved up 0.4%, occupancy increased 20 bps from the prior-year quarter.

The company’s new executed domestic franchise agreements came in at 287 in the fourth quarter, bringing the full-year domestic franchise agreements to 756, marking an increase of 7% year over year.

New domestic franchise agreements for the company's extended-stay brands totaled 161 for 2018, marking an increase of 156% (37% excluding WoodSpring Suites) from the comparable period of 2017.

Operating Results

In the reported quarter, total operating expenses summed $188.6 million, up 20.1% from the fourth quarter of 2017. Operating income decreased 19.5% to $52 million. Net income totaled $31.5 million against net loss of $9.8 million in the fourth quarter of 2017.

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

 

Balance Sheet

Cash and cash equivalents at the end of the fourth quarter were $26.6 million compared with $235.3 million as of Dec 31, 2017.

Long-term debt as of Dec 31, 2018, was $753.5 million, up from $725.3 million as of Dec 31, 2017. Goodwill, as a percentage of total assets, at the end of the fourth quarter was 14.8%, up from 8.1% at the end of 2017.

By the end of the fourth quarter of 2018, Choice Hotels paid cash dividends of nearly $49 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 $48 million in 2019. Meanwhile, management repurchased roughly $149 million shares of common stock under the share repurchase program during 2018.

First-Quarter Guidance

For the first quarter of 2019, earnings per share (EPS) are anticipated to be 72-76 cents. The Zacks Consensus Estimate for the same is pegged at 77 cents, exceeding the company’s guided range. Domestic RevPAR is expected to remain unchanged year over year in the first quarter.

2019 Outlook

For 2019, Choice Hotels expects EPS to be $4-$4.13, lower than the Zacks Consensus Estimate of $4.19. Adjusted EBITDA is expected to be between $354 million and $363 million.

Net domestic unit growth is expected to be 2-3%. Domestic RevPAR is expected to grow between 0.5% and 2%.

Zacks Rank & Peer Releases

Choice Hotels currently carries 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) reported mixed fourth-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate while revenues lagged the same. With this, the bottom line exceeded the consensus mark for 12 straight quarters while the top line missed the same for the fourth consecutive quarter.

Hilton (HLT - Free Report) reported mixed results for fourth-quarter 2018, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Notably, revenues missed the consensus mark for the fourth straight quarter.

Upcoming Peer Release

Marriott (MAR - Free Report) is expected to report quarterly numbers on Feb 28. The Zacks Consensus Estimate for the company’s fourth-quarter earnings is pegged at $1.40, marking a 25% increase from the year-ago quarter.

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