MGM Mirage, Station Casinos 2Q makes investors smile

Aug 2, 2005 12:40 AM

The gaming industry earnings season was lackluster until last Thursday when both MGM MIRAGE Inc. (MGM) and Station Casinos Inc. (STN) reported blow out quarters for the period that ended on June 30.

Investors were so pleased with the reports that they boosted the shares of both companies to 52-week highs. At the end of the trading day, MGM was trading at $46 per share, up $2.10 for the day, while Station Casinos had reached a high of $74.26 per share, up $2.46 for the day.

MGM’s gain came after the company reported strong earnings that benefited from the addition of properties owned by Mandalay Resort Group that was acquired by MGM for $7.3 billion earlier in the year.

Total revenues for the three-month period surged to a record $1.72 billion, a 60% increase over the $1.07 billion recorded in the comparable quarter of 2004. The amount also topped the analysts’ consensus of $1.59 billion.

Earnings from operations totaled $137.4 million or $0.46 per share, a record for the company. Analysts had been looking for $0.44 per share. Also encouraging was an 11% increase in what was described as "same-store" properties.

Another boost, company officials said, came from the opening of the Wynn Resort. They said that business at the Bellagio increased from the added traffic generated by the new property.

The company said it continued to work on integrating the new properties into the fold and that "hundreds of millions of dollars" will be spent on upgrading the Mandalay properties. Shortly after the takeover, the company noted that only a quarter of the slot machines at Mandalay Bay, Luxor and the Excalibur had been converted to the more popular ticket-in/ticket-out procedure. A program was instituted to upgrade the machines.

During the reporting period, the company said, it was able to reduce its debt by $513 million.

Station Casinos

Success of the Station Casinos properties was placed directly at the feet of what officials described as a strong Las Vegas economy. The company focuses its marketing on the so-called "locals."

Net income for the reporting period, after adjusting for certain costs, moved up to $40.6 million or $0.58 per share, easily topping last year’s $29 million or $0.43 per share. Revenues rose 14% to $274 million from last year’s $240.2 million. In same-store comparisons, the company said that properties open at least one year grew by 16%.

The company noted that same-store EBITDA (earnings before interest, taxes, depreciation and amortization) increased 29% over last year’s second quarter.

Two major projects were announced during the quarterly report. The first involved Green Valley Ranch that Station Casinos owns in partnership with the Greenspun family. Phase III of the Green Valley Ranch Master Plan will be started in order to have it completed by some time next year or early 2007. The $110 million project will involve a 1,500 space parking garage, additional slot machines, a new race and sports book and a new poker room, as well as a 500-seat entertainment lounge, and more convention space and restaurants.

The second project will be a 600-luxury unit high-rise that will be constructed in partnership with two well-known developers, Steve Cloobeck, former owner of the Polo Towers, and Irwin Molasky, prominent Las Vegas builder who built one of the first high-rises in Las Vegas at the Hughes Center.

The high-end residential building will sit on eight acres located adjacent to the Red Rock Resort currently under construction in Summerlin. The partnership agreement provides that Station Casinos will own 80% of the high-rise while Cloobeck/Molasky will own 20%.

Boyd Gaming

So what happened with the shares of Boyd Gaming Corporation? This was the fourth consecutive quarter, the company said, that its earnings per share had more than doubled compared to the previous year.

Yet, Wall Street failed to hear the results, or for whatever reason, sent the share price south by some 8%.

That attitude reversed itself on Thursday, however, and the week’s loss was eliminated with the shares of the company closing at $52.88, or $2.23 higher for the day but still below the 52-week high of $59.25.

Of course the acquisition of the Coast Casinos pushed quarterly revenues to a high of $554.3 million, up from the previous year’s $341.9 million. Net income was $48.6 million or $0.56 per share whereas in 2004 the net income was $15.5 million or $0.27 per share.

Analysts had forecast revenues of $559.8 million, thus partially explaining the sudden sell off in the company shares. But the analysts had expected only $0.55 per share in earnings.

Boyd also credited the "locals" business for its outstanding performance.

Addressing the quarterly performance, Bill Boyd, chairman and CEO, said, "Our Las Vegas locals business, represented by our Boulder Strip and Coast Casino units, again delivered excellent results with second quarter combined revenues and EBITDA growing 10.4% and 32% respectively when compared to the prior year’s second quarter.

"Our downtown Las Vegas properties also had a great quarter, producing record results despite continuing high fuel costs in our Hawaiian air charter operations."

Boyd also hailed the results of the Borgata Hotel Resort in Atlantic City, which it owns in partnership with MGM MIRAGE Inc. (MGG), and the Delta Downs racino operation in Louisiana.

As an explanation of revenue sources, Boyd said that for every dollar the company takes in for hotel rooms, it takes in roughly two dollars on food and $10 on gaming.