Choice Hotels International, Inc. (NYSE:CHH) today reported third quarter 2003 net income of $24.3 million, or $0.66 diluted earnings per share (EPS), a 22% increase in EPS over the same period of a year ago. These results exceeded consensus estimates by $0.03 per share. The company reported net income of $21.9 million, or $0.54 diluted EPS, for the third quarter of 2002.
The company also announced that its operating income increased to $39.8 million for third quarter 2003, an 8.7% gain over the $36.6 million reported at the end of third quarter 2002. Operating cash flow for the nine months ended September 30, 2003, increased to $82.0 million, up $7.3 million from the same period a year ago.
“Our performance this quarter demonstrates and underscores the ability of our franchising business model to generate a consistently strong performance,” said Charles A. Ledsinger, Jr., president and chief executive officer.
He added, “We`re especially pleased by the outstanding results in executed domestic franchise hotel contracts, which are up 39% year-to-date to nearly 300 contracts representing more than 25,000 rooms. We view these contracts as a strong endorsement of our brands as well as our franchise system and its services. More importantly, these contracts extend our development pipeline, ensuring future unit growth that will drive royalties and earnings.”
Third Quarter Performance
The company reported royalty revenues of $48.3 million for third quarter 2003, compared to $46.3 million for the same period in 2002, an increase of 4.3%. The system-wide domestic effective royalty rate increased four basis points from 3.99% in third quarter 2002 to 4.03% for the same period in 2003. System-wide domestic revenue per available room (RevPAR) was $43.44 in third quarter 2003, compared to $43.79 for the third quarter of 2002.
For the first nine months of 2003, Choice reported net income of $51.1 million or $1.38 diluted EPS, increases of 11.8% and 23.2% respectively over the $45.7 million and $1.12 diluted EPS reported for the first nine months of 2002. Operating income through September 30, 2003 increased to $85.7 million, compared to $80.1 million for the same period a year ago.
Royalty revenues for the first nine months of 2003 were $113.2 million, compared to $108.6 million for the same period a year ago. The system-wide domestic effective royalty rate increased two basis points from 3.98% for the first nine months of 2002 to 4.00% for the same period in 2003. Domestic RevPAR was $34.50 for the first nine months of 2003, compared to $35.17 for the same period in 2002.
The company adopted Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” and began expensing the cost of stock options based on their estimated fair value for all awards granted after January 1, 2003. During the third quarter 2003, the company`s net income includes approximately $0.2 million of expense related to stock options. For all of 2003, the expense associated with stock options is expected to be $0.7 million.
The total number of domestic Choice hotels on-line grew by 4.9% to 3,601 (291,827 rooms on-line) as of September 30, 2003 from 3,434 (279,135 rooms on-line) as of the same period a year ago. For the first nine months of this year, net domestic property additions were 119, compared to 107 for the same period of a year ago.
Choice executed 108 new domestic hotel franchise contracts representing 8,269 rooms in third quarter 2003, compared to 82 new contracts representing 7,053 rooms for the same period a year ago. For the first nine months of 2003, Choice has executed 294 new domestic hotel franchise contracts, representing 25,964 rooms, compared to 211 contracts, representing 17,936 rooms, for the same period in 2002.
The fees arising from the increased number of executed contracts, combined with an increase in the number of relicensings, resulted in a 14.2% and 21.9% increase in initial franchise and relicensing fees for the three and nine months ended September 30, 2003, compared to the same period in 2002.
As of September 30, 2003, the total number of Choice hotels worldwide grew 3.3% to 4,773 from 4,622 as of the same date a year ago. This growth represents an increase of 4.0% in the number of rooms open to 384,814 from 370,075. At the end of third quarter 2003, Choice had 426 hotels under development worldwide, representing 35,417 rooms.
The company`s fourth quarter 2003 earnings are expected to be in the range of $0.42 to $0.44, with full year 2003 diluted EPS are expected to be between $1.80 and $1.82, up from the previous full year estimate of $1.74 to $1.77 that was announced on July 23, 2003.
Since Choice announced its stock repurchase program on June 25, 1998, the company has purchased 28.3 million shares of common stock at an average price of $16.90 per share and a total cost of $478.4 million, as of October 21, 2003. The Company has remaining authorization to purchase up to 3.1 million shares. Total shares outstanding as of September 30, 2003, are 35.7 million.
On August 13, 2003, Choice announced its Board`s intention to initiate payment of a cash dividend on its common stock beginning in the fourth quarter of 2003. The plan approved by the Board anticipates an initial quarterly dividend of $0.20, or $0.80 per share annually. The actual declaration of dividends, and the setting of record and payment dates, is subject to final determination by the Board each quarter after its review of the company`s financial performance.
Full Details on the Choice Hotels Wesite.