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Choice Hotels (CHH) Beats on Q2 Earnings, Raises EPS View

Zacks

Choice Hotels International, Inc. CHH reported mixed results for the second quarter of 2018, wherein earnings surpassed analysts’ expectation, whereas revenues lagged the same.

Adjusted earnings of $1.11 topped the Zacks Consensus Estimate of $1.05 by 5.7% and increased 48% from the year-ago quarter. Earnings were favored by the company’s core franchising operations and an effective tax rate.

Total revenues of $295.4 million lagged the consensus estimate of $310 million but increased 13% from the year-ago level on higher revenue per available room (RevPAR) growth.

Increased demand for lodging, along with Choice Hotel’s continual expansion strategies through acquisitions and franchise agreements, has helped the company to witness year-over-year growth in both top and bottom lines. Backed by a strong brand presence, shares of Choice Hotels have gained 27.4% in the past year, outperforming the industry’s rally of 6.2%.



Let’s delve deeper into numbers.

Franchising & Royalties Details

Hotel franchising revenues in the second quarter witnessed rise of 14%. Adjusted EBITDA from hotel franchising activities increased 18% from the prior-year quarter to $95.8 million. Adjusted hotel franchising margins also expanded 90 basis points (bps) year over year to 68.2% in the reported quarter.

Domestic royalty fees in the quarter under review amounted to $97.6 million, marking a 13% year-over-year increase. Domestic system-wide RevPAR increased 2.7% year over year. While average daily rates (ADR) moved up 2.4%, occupancy increased 20 bps from the prior-year quarter.

As of Jun 30, 2018, the number of domestic franchised hotels and rooms increased 6.5% and 8.8%, respectively.

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

Operating Results

Total operating expenses in the second quarter were $186.5 million, up 7% from the second quarter of 2017. Operating income increased 26% to $109 million. Net income was $79.8 million in the second quarter of 2018.

Balance Sheet

Cash and cash equivalents at the end of the second quarter totaled $37.1 million compared with $235.3 million as of Dec 31, 2017.

Long-term debt as of Jun 30, 2018, was $795.1 million, up from $725.3 million as of Dec 31, 2018. Goodwill as a percentage of total assets at the end of the second quarter was 15.4%, up from 8.1% at the end of 2017.

By the end of the second quarter of 2018, Choice Hotels paid cash dividends totaling $24 million. Based on the current quarterly dividend rate of 22 cents per share of common stock, the company expects to pay dividends worth approximately $49 million during 2018. Meanwhile, management also repurchased roughly $71 million shares of common stock under its share repurchase program during the first half of 2018.

Third-Quarter Guidance

For the third quarter, earnings per share are anticipated to be $1.13-$1.17, up from the previous guidance of $1.00-$1.03. Domestic RevPAR is expected to remain between flat and up 1.5% in the third quarter.

Raises 2018 EPS Outlook

For 2018, Choice Hotels expects EPS to be $3.71-$3.77, up from the earlier guidance of $3.61-$3.71. Adjusted EBITDA for 2018 is expected to be between $333 million and $339 million.

Net domestic unit growth for 2018 is expected to be 7-8%. Domestic RevPAR is expected to grow between 1.5% and 3%.

Zacks Rank & Peer Releases

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

Extended Stay America STAY reported better-than-expected earnings for the third straight quarter when it posted second-quarter 2018 financial numbers. Adjusted earnings were 35 cents per share, outpacing the Zacks Consensus Estimate of 34 cents. The bottom line also grew 12.9% year over year, backed by a decrease in effective tax rate and lower depreciation expenses.

Hilton HLT reported mixed results for the second quarter of 2018, wherein earnings met analysts’ expectations while revenues lagged. Markedly, after posting earnings beat for six straight quarters, Hilton’s adjusted earnings of 70 cents per share in the second quarter met the Zacks Consensus Estimate. Earnings increased 37% year over year.

Hyatt H posted mixed results in the second quarter of 2018, wherein earnings surpassed the Zacks Consensus Estimate while revenues lagged the same. Adjusted earnings of 72 cents per share beat the consensus estimate of 48 cents by 50%. Earnings grew 41.2% year over year on higher EBITDA margins.

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