A Pinnacle ‘profit warning’
has investors dumping shares

Jan 9, 2007 4:31 AM

With Wall Street dominated by "Nervous Nellies," it has become common for major reactions to follow companies that issue so-called "profit warnings."

A good example was noted last week when Pinnacle Entertainment Inc. (PNK), one of the "darlings" of gaming investors since Hurricane Katrina destroyed casinos along the Gulf Coast from Louisiana to Mississippi. Pinnacle Entertainment saw its share price plummet after issuing a dreaded "profit warning."

For the fourth quarter, the company said in its announcement, it expected significantly lower earnings compared to a year earlier because of increased competition that reduced revenues, and an increase in the cost of operating its casinos.

By day’s end on Friday, the share price of PNK fell $3.35 to $30.51 per share. The shares that normally trade at a volume of about 480,000 per trading day saw more than 2.1 million shares change hands.

The company announcement specifically focused on its Louisiana operations where it said the re-opening of the land-based Harrah’s Hotel/Casino in New Orleans and other area casinos had eaten into its revenues. Also affecting the bottom line, the company added, was higher marketing costs at its Belterra Casino Resort in Indiana.

The "profit warning" announcement came on the heels of another announcement which dealt with the company’s intention to raise funds by issuing another 10 million shares to be sold through an underwriter. The company did not indicate at what price it intended to sell the shares but said it would offer another 1.5 million shares as an option for the underwriter.

After the offering, the company will have about 58.2 million shares outstanding, not including the 1.5 million being offered to the underwriter.

Pinnacle Entertainment said it planned to use the share proceeds for general corporate purposes and for one or more capital projects, including expanding its existing facilities in Missouri and Louisiana and a new project in Atlantic City.

On Monday, Pinnacle notified the Securities and Exchange Commission (SEC) that the company’s compensation committee had approved 2006 cash bonuses and deferred bonuses for certain executive officers, excluding Chairman and CEO Dan Lee, whose bonuses will be addressed at a later date.

Awarded the bonuses were: Wade Hundley, president, $360,000 and $120,000 deferred; Stephen Capp, executive vice president and CFO, $337,500 and $112,500; Alain Uboldi, COO, $255,000 and $85,000, and Jack Godfrey, executive vice president secretary and general counsel, $243,750 and $81,250.

Small response

A month ago, Kirk Kerkorian, whose Tracinda Corp. is the largest single stockholder in MGM MIRAGE Inc. (MGM), announced that he was going to increase his holdings in the gaming company with an offering to acquire up to 15 million shares at $55 per share.

The announcement immediately pushed the trading price of the company above the $55 offer to as much as $58 and change.

Yet, at the close of the offering period, Tracinda announced that it had received commitments for 444,573 shares that would raise its ownership to 158.8 million shares, or approximately 55.9% of the company’s outstanding shares.

Penguins pursuit

It appears that the battle for the Penguins National Hockey League franchise will be between Pittsburgh, Pa., and Kansas City, Mo.

When Pennsylvania’s gaming regulators failed to give a slots license to Isle of Capri Casinos Inc. (ISLE) and take advantage of that company’s offer to build $290 million arena for the Penguins, owner Mario Lemieux indicated he planned to shop his team around to get the best deal he could.

A minor offer was made by officials in Hartford, Conn., a city that was the home of the Hartford Whalers until the mid ”˜90s when the franchise was moved. But a more impressive offer came from Kansas City.

A representative of Anschutz Entertainment Group, the company that operates the new Sprint Center in Kansas City, offered the team a rent-free situation. The offer also would permit the Penguins to be equal managing partners with Anschutz Entertainment.

The move prompted Pennsylvania Gov. Ed Rendell to bring Lemieux and his partners in for a meeting that Lemieux called "very positive."

A bidding war may be in the making.

THE INSIDER: Jefferies & Co. analysts have downgraded the shares of Ameristar Casinos Inc. from "buy" to "hold."

Net income for all Nevada’s major hotel/casinos for fiscal year 2006 rose to about $2.1 billion, according to figures released by the Nevada Gaming Control Board. Gross income for the 274 resorts totaled $5.4 billion, the report said.

International Game Technology (IGT) announced it would hold a conference call to report its 2007 first quarter earnings on Thursday, Jan. 18, at 6 a.m. PDT.

Penn National Gaming Inc. (PENN) has been named by Forbes magazine as one of the best big companies being operated in the U.S. during 2006.

Tim Wilmott, chief operating officer of Harrah’s Entertainment Inc. (HET) resigned from the company as of Jan. 5.

Scientific Games Corporation (SGMS) has completed the acquisition of Games Media Ltd., a British company that develops "Amusement With Prizes" machines.

Alex Waldrop, former president and chief counsel of Churchill Downs racetrack, has been named president and CEO of the National Thoroughbred Racing Association (NTRA) replacing Greg Avioli.

Analysts at Bear Stearns have initiated coverage of the shares of Scientific Games Corp. (SGMS) with a "peer perform" rating.

Sportsystems Corp., a division of Buffalo’s Delaware North Companies, has announced an expansion of its Wheeling Island Racetrack and Gaming Center in Wheeling, West Va. The casino expects to have 2,400 slot machines available.

Richard White, a managing director at Oppenheimer & Co., has been appointed to fill a vacancy on the board of directors of Lakes Entertainment Inc. (LACO).

Youbet.com Inc. (UBET) announced it plans to sell 6.2 million of its common stock at an agreed of price of $3.25 per share.