Ho hum reaction to strong gaming earnings

Aug 9, 2005 4:30 AM

Strong earnings reports by some major gaming companies failed to impress Wall Street investors last week with the majority of gaming stocks falling in value after analysts suggested it was time to take profits.

Harrah’s Entertainment Inc. (HET) reported per share earnings for the second quarter of $0.84, beating by 17% last year’s $0.79 per share. But analysts had projected per share earnings of $0.93 and company’s that miss the projections often take a hit on their share price. Harrah’s shares fell more than 4% following the announcement.

Earnings per share of $0.08 reported by Wynn Resorts Ltd. (WYNN) matched the consensus of analysts polled by Thomson First Call but still the share price fell. The immediate question raised was whether the Las Vegas Strip’s newest property could sustain the $201.1 million it generated during the recent quarter throughout the year.

During the second quarter WYNN charged off $43.4 million in pre-opening expenses, as well as costs incurred in the development of its Las Vegas property, Encore, and a new facility in Macau.

Actually it was the strong business in Macau that permitted Las Vegas Sands Inc. (LVS) to report adjusted earnings of $95.5 million or $0.27 per share for the second quarter that ended on June 30.

During the period, Sands Macau reported casino revenue of $201.1 million, a strong improvement over the first quarter of the current fiscal year when $171 million was reported. Adjusted cash flow for the second quarter was $81 million whereas in the first quarter cash flow was $74.8 million.

Hurting the Venetian’s earnings for the period was the fact that the property played less lucky than it did a year ago. Casino revenue edged down to $73.7 million compared to last year’s $76.2 million with the hold dropping from 21.1% in 2004 to the current 18.6%.

Also, food and beverage revenues dropped 9.4% to $27.8 million, possibly due to the competition from the newly opened Wynn Resort.

Although the purchase of the Caesars properties only included 17 days in Harrah’s report, the merger did help boost revenues to $1.47 billion, a 42% increase over last year.

Harrah’s officials said they believe they have developed a strategy to boost earnings growth in the future. In the current quarter, they said, Caesars will be opening a new 949-room tower.

As for Las Vegas Sands, William Weidner, president and COO, believes the company will experience substantial growth as the plans for the Chinese South Sea gaming location in Macau further develops. The company has a number of developments on the drawing board that include both gaming and hostelry/retail on the Cotai Strip.

Churchill Downs

Taking one of the biggest hits in share price last week was Churchill Downs Inc. (CHDN) that reported a sharp decline in earnings.

The company said revenue for the second quarter was $163.2 million, a 16.4% jump from last year’s $140.2 million. .

However, because of higher depreciation costs and interest expense, the company’s earnings fell to $24.2 million or $1.80 per share compared to $227.7 million or $2.06 in 2004.

Another negative factor, said Tom Meeker, president and CEO, was weather. Racing at the company’s many tracks was affected by rain, excessive heat and sick horses, leading to smaller fields and a decline in wagering.

Among the more significant events during the reporting period, he said, was the decision to sell Hollywood Park, primarily due to the reluctance of California lawmakers to permit racetracks to install slot machines.

Ameristar

Another company that showed solid profits but failed to meet analysts’ projections was Ameristar Casinos Inc. (ASCA).

The company reported an 11% increase in its net earnings but the $0.29 per share was a penny shy of the analysts’ forecast of $0.30 per share. And, investors were unhappy to hear the company forecast third quarter earnings of between $0.30 and $0.32 per share. This fell below analysts’ consensus of $0.33 per share.

Cause for concern was the company’s announcement that construction disruption related to its expansion of a casino near Denver, Colo., hurt the quarterly earnings and could make things worse through the remainder of the year.