txcheesehead's  Instablog

A recent analysis of the State of Texas Open Records Franchise Tax report reveals that Choice Hotels' (CHH) Texas properties are facing extreme year over year revenue declines well above the (15%) RevPar decline the company has forecast for the upcoming quarter.  The records are available at:

http://www.window.state.tx.us/taxinfo/taxfiles.html#hotel

According to these self-reported numbers, the company's Texas Comfort Inn properties revenue declined on a year over year basis by an average of (24.3%) during the three month period ending in August, their  Quality Inns by an average of (28.8%) and their EconoLodge properties declined by an average of (18.8%). 

These numbers are well below the company’s guidance for a (15%) RevPar decline and may be indicative of a more challenging environment for their operators than the company has publicly disclosed.Further, given that Texas is historically a “stronger” geographic area than other parts of the U.S., I’d be inclined to think that other areas are facing more severe declines.  

As such, I anticipate the company's RevPar for the upcoming quarter to decline more than their guidance and they will continue to of lower RevPar expectations for the remainder of the year.   Not neccessarilly a positive development for a stock trading near it's 52-week high. 

Recent comments from General Cable (BGC) conference call…don’t seem to bode well for Encore Wire (WIRE).  

“During the second quarter copper averaged $2.15 per pound compared to $1.57 in the first quarter, an increase of 37% and it's now trading near $2.80. This increase in copper prices seems counter to the reduction in global copper demand resulting from lower global wire and cable consumption. Wire and cable is the biggest terminal market for copper at roughly 65% of consumption. The continuing increase in copper prices is more difficult to rapidly recover in a low capacity utilization environment and will likely put pressure on earnings in the upcoming quarter.

Discussions around the U.S. government stimulus seems to have subsided as the realization sets in that very little actual spending has taken place. As you know, we have not planned for any windfall related to these government programs. In fact, from our fourth quarter 2008 conference call, before the new administration even took office, we specifically said that we did not believe that the new administration's spending initiatives coming from the stimulus bill would necessarily be incremental in the short term to the spending that would have occurred by the private sector on its own”

In my opinion, WIRE may have trouble showing a profit this quarter vs. a $0.15 consensus estimate.  If copper prices stay where they are now for rest of Q3 look for another large LIFO charge to drag on the company's earnings. 

At nearly 40x this year's estimate and 22x next year, this commodity wire provider looks rich to me considering the near term risk to estimates. 

Author is currently short WIRE.