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Good earnings fail to appease nervous investors

Feb 19, 2008 6:09 AM

Investors were in no mood to hear the slightest hint of bad news last week, as the share prices of Wynn Resorts Ltd. (WYNN) and Bally Technologies Inc. (BYI) can attest.

Although Wynn Resorts reported a $65.5 million profit for the fourth fiscal quarter, benefiting from strong high-end play at its hotel/casino in Macau, just the fact that Steve Wynn used the word "caution" in dealing with future Las Vegas business was enough to sour Wall Street.

When the week opened, Wynn Resorts shares were just under $120 each, but by week’s end they had fallen to $104.62.

Bally Technology had a blowout quarter with earnings per share reaching $0.42 each, topping the collective wisdom of gaming analysts who had forecasts earnings to be $0.39 per share.

But, naysayers, who misinterpreted an announcement by Harrah’s Entertainment Inc. advising that the company had selected International Game Technology (IGT) to handle its server-based requirements, warned that it would shut out Bally Technologies from marketing its gaming machines to Harrah’s.

Not true, said Bally Tech.

Then others suggested there might negative implications to a patent lawsuit, filed by IGT against Bally Technology that is scheduled for trial in May.

Again, with rumors flying, BYI shares continued a downward spiral that took it from a high of $52 a few weeks ago to Friday’s closing of $39.55 per share.

Among its business highlights for 2007, Wynn Resorts listed the payment of a $6.00 per share distribution to shareholders of record on Dec. 10; successfully opened the Wynn Macau expansion on Dec. 24, 2007, and broke ground on Wynn Diamond suites in Macau.

Net revenues for the fourth quarter were $711.3 million, compared to $563.6 million in the fourth quarter of 2006. For the year, the company had revenues of $2.7 billion, an 87.6% increase over the previous year.

Net income for the fourth quarter reached $65.5 million while the comparable period’s net income was a loss of $55.4 million. On an annual basis, exclusive of revenue from the sale of a sub-concession in Macau, diluted net income was $258 million or $2.34 per share.

While speaking to analysts, Steve Wynn, chairman and CEO, said the company had not as yet seen a slowdown in business but suggested "it would be unsophisticated to think that Las Vegas is somehow a magical island unto itself." He advised analysts to "turn on a yellow light" relative to future Las Vegas business.

He emphasized that he catered to the high-end clientele that would be less affected by a market slowdown, an opinion shared by Dennis Forst, analyst at Keybanc Capital Markets.

"I think that people are nervous about the Las Vegas Strip," said Forst, who added that Wynn, Bellagio and the Venetian catered to richer clientele who were "more resistant than others" should a country-wide recession occur.

As for Bally Technology, the company’s second quarter was filled with record numbers.

Revenues for the period jumped to $218.9 million compared to last year’s $139.7 with net income reaching $24.4 million. In the comparable quarter of 2007, the company reported a net loss of $2.5 million.

Total revenues for the reporting quarter hit $419.7 million compared with last year’s $304.7 million.

During the period, the company said it sold 7,144 units with a selling price of $13,147 per unit. In 2007, the company sold 4,672 units with a selling price of $12,620.

For the remainder of the fiscal year, the company raised its projections for earnings per share to be in a range of between $1.62 and $1.87 per share. Revenues are expected to exceed $875 million.

Richard Haddrill, CEO, noted that "Our game performance and continued system success is reflected in record quarterly revenues for each of our game sales, gaming operations and systems business."