LVS Q3 loss causes gaming stock plunge

November 06, 2007 5:30 AM
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Investors in the major gaming companies were generally disappointed last week when MGM MIRAGE Inc. (MGM), Wynn Resorts Ltd. (WYNN) and Las Vegas Sands Corp. (LVS) reported their experiences for the fiscal quarter that ended on Sept. 30.

There was a bit of movement to the downside following the announcements by MGM and WYNN but the blockbuster came from Las Vegas Sands whose shares on Thursday, after the market had closed, plummeted $28 per share in after-market trading. And almost in sympathy, shares of WYNN fell $20 each.

By Friday morning, after the financial information had been digested, bidders pushed the price of Las Vegas Sands shares to $109 at the opening. Before trading ended, however, LVS shares had regained a good deal of its initial loss and closed at $117 a share.

A similar situation developed for shares of Wynn Resorts. After opening at $142.58 per share, already affected by the after market trading, the price increased throughout the trading day until it closed at $149.40 per share.

Not as volatile, were the shares of MGM MIRAGE. These opened at $88.10 each and moved upward throughout the day to a final closing price of $91.50.

Las Vegas Sands

Without question, the shocker to investors and analysts was the announcement by Las Vegas Sands that it had lost $48.5 million during the third quarter, or $0.14 per share, despite a 19.5% rise in revenue.

Management attributed the loss to the high costs to open its megaresort in Macau and just plain bad luck at the gaming tables.

Taking the biggest personal hit was Sheldon Adelson, company CEO and the largest single stockholder who was ranked as the third richest American on the Forbes list a few weeks ago. In the afterhours trading, it was estimated that his net worth had dropped $6 billion.

"We just didn’t have a good quarter. That’s the end of it" he told listeners of a conference call. "That quarter is not lasting. It’s just the nature of the business. And it makes a good trading opportunity for day traders and hedge funds."

Table game hold, the company said, averaged 14.7% compared to last year’s 23.4%. It was estimated that the low hold percentage cost the company about $30 million in profit while the pre-opening costs of The Venetian Macao on Aug. 28 reached $75.9 million.

Adjusted net income for the quarter amounted to $41.8 million or $0.12 per share compared to $117.6 million or $0.33 per share in 2006. Analysts had expected earnings to reach $0.31 per share on revenue of $783 million.

Despite the drop in profit, an analyst for Jefferies & Co. remained optimistic.

"Don’t throw the baby out with the bath water, "wrote Larry Klatzkin. "It was a bad start, but the fundamental story doesn’t change, and the quality of the product doesn’t change."

Wynn Resorts

The numbers were better at Wynn Resorts Ltd., barely beating analysts’ estimates, but still the investors were a little leery prior to the Thursday LVS bombshell.

Net income for WYNN was $44.7 million on revenue of $653.4 million. This resulted in a per share profit of $0.41, a lot lower than last year’s $6.43 per share when the company included in the profit the nearly $800 million the company booked as payment for a gaming concession in Macau paid by Melco PBL Entertainment Ltd. (MPEL).

Following adjustments, the company said net profit reached $73.4 million or $0.67 per share. Analysts had expected revenues of $63.7 million and per share earnings of $0.63 each.

In trading, the price of WYNN shares fell about $5 each after the earnings announcement. That was followed by another drop of $6 a share on Wednesday with a further decline later in the week.

Referring to the Macau operation, Steve Wynn, chairman and CEO, said his casino was not impacted by the August opening of The Venetian Macao.

MGM MIRAGE

Helped by insurance recoveries for damage caused to its property in Biloxi, Miss., by Hurricane Katrina, MGM MIRAGE Inc. reported third quarter earnings of $183.9 million or $0.62 per share compared with $156.3 million or $0.54 per share.

The insurance payments added about $0.24 per share in income.

Net revenues for the period reached $1.9 billion, matching analysts’ expectations. But the results were generally considered "tepid."

In a television interview, Terry Lanni, chairman and CEO, acknowledged that high end play at both Bellagio and Mirage was less than what management expected. He suspected that the bigger players, especially from Southeast Asia, were being lured to Macau. And, he emphasized that MGM and its partner, Pansy Ho, would open a Macau casino resort in December.

Lanni noted that the company has a $275 million investment in the Macau property which, when finished, will a price tag of $1.25 billion.

Bellagio, it was mentioned, had renovations done to its high-end gaming room which could have accounted for a reduction in revenue.

Steve Kent of Goldman Sachs, in a research note, said, "It is hard to ignore what looks to be like a deceleration in profitability and rising development costs, but we continue to think MGM shares will trade primarily based on expectations that Dubai World is interested in owning more share of the company, which should provide some support."

Dubai World has already taken a 4.7% stake in the company and a half-interest in the company’s Las Vegas Strip development, CityCenter.