Choice Hotels Int'l (CHH)
 
In the 3-months ending April, CHH has posted gains in 8 of the past 10 years, generating a 7.12% average return and a 6.8% median return. CHH's standard deviation is 8.77% in the period and its correlation to the SPY is 0.03.
 

Choice is the 2nd largest hotelier in terms of number of hotels in the U.S., where 79% of its rooms are located (426k rooms open or under development).  9% of its hotels are in Europe (47k rooms open or under development), 5% in Canada, and 4.4% in Asia Pacific.  45% of its hotels are upper midscale, 32% are midscale and 18% are economy.  The company franchises lodging properties under its proprietary brand names comprising Comfort Inn, Comfort Suites, Quality, Clarion, Ascend Collection, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Extended Stay Hotel, and Cambria Suites. As of January 29, 2014, it franchises ~6,300 hotels  (up 1.7% YoY) consisting of ~503k rooms (up 1.2% YoY) in the U.S., as well as 30 other countries and territories. As of September 30, 2013, 371 hotels, representing more than 29,000 rooms, were under construction, awaiting conversion or approved for development in the United States. Additionally, 84 hotels, representing approximately 7,200 rooms, were under construction, awaiting conversion or approved for development in more than 15 other countries and territories. 

Choice opened 107 properties worldwide and signed 129 new domestic franchise agreements in Q3, 45% more than were signed in Q3, 2012.  In the third quarter, franchise revenue grew 6% to $95.5 million.  Domestic RevPAR expanded 3% to $52.63 (RevPAR was $35.18 in 2009), thanks to occupancy growth of 70 bps and rate growth of 1.9%.  Avg. daily room rate was $80.14 in the third quarter, lifting nine month ADR to $75.1.  For comparison, ADR in the year ago quarter was $78.6.  Occupancy was 65.7%, up 70 bps YoY (Occupancy was below 50% on 487k rooms in 2009).  Domestic royalty fees grew 3% to $76.7 million.  Overall, total revenue was up 6% to $223 million in Q3, bringing sales through the first nine months to $543.6 million, also up 6% (sales are up 14% since Q2 2011). The number of worldwide hotels under construction, awaiting conversion or approved for development as of September 30, 2013 was 455 hotels representing 37,077 rooms, an increase of 4.6% and 2.6%, respectively, from September 30, 2012. Since its stock repurchase program began in 1998, the company has repurchased 45.3 million shares of its common stock for a total cost of $1.1 billion. In the 12 month period ending September, the company's net debt fell from $721 million to $664 million.  Cash stood at $161 million exiting the third quarter, up from $134 million a year ago. 

Note: results will be reported on the 18th; exiting Q3 Choice guided for $0.44 to $0.46 per share, and $1.89 to $1.91 for the full year, based on RevPar growth of 2% for the quarter and 3.25% for the year. For the full year, net domestic unit growth is expected to have grown by 2%.

Q3 Earnings Transcript
Corporate Presentations

Zimmer Holdings, Inc. (ZMH)
 
In the 3-months ending April, ZMH posted gains in 8 of the past 10 years, generating a 4.72% average return and a 4.13% median return. ZMH's standard deviation is 8.13% in the period and its correlation to the SPY is 0.36.
 

There were 719,000 total knee (up from 543k in 2007) and 332,000 total hip (up from 230k in 2007) replacements in the U.S. in 2010.  The number of procedures will likely climb as baby boomers age given hip fractures account for nearly one half of fracture hospitalizations in patients over 65; and patients over 65 account for more than half of all fracture hospitalizations annually.  Between 1999 and 2007, the number of hip and knee replacements grew by a statistically significant 21% and 65% among Medicare patients.  Spine related procedures jumped nearly 60%.  Zimmer is the #1 market share leader in knee replacement, with a 26% share.  Knee sales have improved 8.77% to 1.9 billion between 2009 and 2013.  In Q4, despite a -2.4% price headwind, knee sales were up 9.7% thanks to 12.1% volume growth.  Zimmer is #2 in hips, with a 21% share. Hip sales have climbed 8.3% from 2009 through 2013 to 1.33 billion. In Q4, hip sales improved 2.9% as volume/mix growth of 5.3% offset -2.4% price headwinds. Sales were weighed down by Europe -- a market that is showing signs of stabilization, and could improve in 2014.  In extremities, where ZMH is #3 with a 13% share, sales have grown 43% since 2009 to $194 million.  Sales in Q4 grew 11% thanks to shoulder and elbow products. 

The acquisition of Normed last summer broadens ZMH's extremities product lineup.  Dental sales grew 1.9% in the fourth quarter, and are 17% higher than 2009.  Its trauma sales have improved 34% since 2009 to $316 million and offers opportunity given ZMH has just 5% market share.  Surgical has been Zimmer's fastest growing business since 2009, growing 53% to $432 million.  Sales grew 15.9% in Q4 -- making for tough comps year. All combined, those product lines have more than offset weakness in spine.  Spine sales have fallen 20% since 2009 to $202 million and fell 2% in Q4. Zimmer hopes new products can return the business to growth this year.  Overall, sales grew 5.1% year-over-year in the fourth quarter (6.6% ex-currency) to $1.24 billion.  Adjusted EPS grew 9.9% to $1.66.  Full year sales improved 3.4% to $4.62 billion while EPS grew 8.5% to $5.75. During the quarter, ZMH spent $240.6 million buying back 2.7 million shares, bringing full year repurchases to 9.1 million shares (net reduction of 1.7 million shares supporting EPS growth). 

Despite returning money to shareholders, cash still climbed to 1.08 billion from 884 million, short term debt fell to 0.5 million from 100 million, and long term debt dropped to 1.67 billion from 1.72 billion.  Guidance is for EPS of $6.10 to $6.30 on an adjusted basis, on sales growth of between 3.0% and 5.0% (constant currency).  A recovery in Europe could help results, given 27% of sales come from the region.  Asia Pacific sales were up 10% last year and represent 16.5% sales. 

Q4 EPS Conference Call Transcript