Wynn Resorts turns red to black with big 1st quarter

May 8, 2007 8:32 AM

Wall Street investors are rarely forgiving when companies report disappointing quarterly earnings as both Las Vegas Sands Corp. (LVS) and MGM MIRAGE Inc. (MGM) learned last week.

But, they are quick to reward companies that surprise on the upside. Make that read Wynn Resorts Ltd. (WYNN).

After trading hours on Monday, Wynn Resorts reported that revenues more than doubled to $635.3 million from the previous year’s $277.2 million. Of course, a good portion of that additional revenue came from Wynn Macau that opened last September.

Net income for the period was $58.4 million or $0.54 per diluted share compared to the net loss of $11.4 million or $0.12 per share reported in 2006.

But not only did Macau perform spectacularly but so did Wynn Las Vegas, the company said.

For the quarter that ended on March 31, Wynn Las Vegas generated adjusted EBITDA (earnings before interest, taxes, depreciation or amortization) of $111.2 million, a 37.1% increase from the first quarter of 2006, with a 33.6% margin on net revenue.

Wynn Macau generated net revenues (after discounts and commissions) of $304.6 million and Adjusted EBITDA of $79 million.

In after hours trading, WYNN shares jumped to $106.60 with 889,899 shares changing hands. During the regular hours, and before the earnings announcement, shares traded at $101.85, down $0.67 for the day.

Las Vegas Sands

Las Vegas Sands said net revenue for the first quarter that ended on March 31 increased 18.5% to a record $628.2 million compared to $530.4 million the first quarter of 2006. But because of increase expenses, adjusted net income was $114.6 million or $0.32 per diluted share compared to last year’s adjusted net income of $134.8 million or $0.38 per diluted share.

The company explained that the decreases in adjusted net income were "partially affected" by expense increases directly related to the preparations for the pending openings of its new properties in Macau and Singapore, as well as The Palazzo on the Las Vegas Strip.

Strong slot machine play, as well as a strong hold percentage on its table games, helped The Venetian show an increase of 12.9% to $90.3 million in its operating income. The Sands Macao showed first quarter casino revenues of $346 million, a 24.4% jump over 2006, but an increase in the expenses level of $12 million "associated with investments in our human resources and our VIP rolling-chip program," affected the overall income.

During the operating period, the company noted that it had additional competition from the opening of a Wynn Resorts Ltd. property and another casino, operated by gaming mogul Stanley Ho.

It was just such additional competition that had one analyst on May 1 recommend to his clients that LVS shares be shorted. The shares were selling at the time at $90 each but by week’s end, the price had plummeted to $81.74.

"While we remain positive on the long-term prospects of (Macau) casino operators," he wrote, "we believe that in the near term, investors will digest gains in these gaming stocks and reassess the impact of the overall economic slowdown and forward earnings outlook. We are skeptical about Las Vegas Sands’ ability to execute and produce the kind of earnings that would meet the already lofty expectations set by the Street."


MGM MIRAGE Inc. (MGM) achieved its "highest ever first quarter diluted earnings per share from continuing operations of $0.55," the company reported, yet the record was eight cents below what was predicted by a consensus of analysts.

As a result, the company’s shares were battered in trading, closing Friday at $64.66 per share after having reached a mid-$70 level last month.

Earnings from continuing operations, the company said, reached $163 million, up from the $139.9 million in the comparable quarter of 2006.

Gaming revenues increased 4% but decreased by 6% when the figures from the newly-reopened Beau Rivage on the Mississippi Gulf Coast were excluded.

Quarterly revenue, after promotional allowances, climbed 9% to $1.93 billion from last year’s $1.77 billion.

Citigroup gaming analyst Joshua Attie said he thought the quarterly results were "somewhat disappointing." He attributed the performance to soft gaming volume on the Las Vegas Strip and expenses for the CityCenter megaresort under construction.

But analyst J. Cogan of Banc of America Securities viewed MGM’s overall results as solid. He said he remains intrigued by the company’s evolving structure and global growth opportunities, including strategic joint ventures, the leveraging of its real estate holdings and the potential for financial engineering.

The company will open the $1.1 billion MGM Grand Macau, a joint venture with Pansy Ho, later this year.

As for the soft Las Vegas results, MGM Chairman and CEO Terry Lanni lashed out last week at the "gang bangers and others" who jammed the area during the NBA All-Star game in February which fell on the same weekend as Chinese New Year, traditionally a strong gaming weekend for Las Vegas.

Lanni said the types of visitors attracted by the basketball game "weren’t very good for Las Vegas."