MGM has ‘blowout’ quarter

Jul 31, 2001 6:50 AM

Ever since MGM Grand Inc. (MGG) merged with the Mirage Resorts Inc. (MIR) to form the Las Vegas gaming powerhouse MGM MIRAGE Inc. (MGG), Chairman and CEO Terry Lanni has lamented that Wall Street wasn’t giving the company its due.

“I’ve always been troubled,” Lanni said last week, “by the fact that we’re painted by the same brush (as the other companies).”

But in announcing its financial results for the second quarter ended on June 30, Lanni and his associates forced gaming analysts to use “different brushes” to paint and write glowing reports of the company’s success. Jason Ader of Bear, Stearns & Co., one of the most respected gaming analysts on Wall Street, called it “a blowout quarter.”

Earnings for the period amounted to 47 cents a share, beating the First Call consensus by five cents.

“Revenue and operating cash flow soared 74 percent and 63 percent, respectively, representing the 10th consecutive quarterly increase in revenue and EBITDA on a year-over-year basis,” reported CFO Jim Murren. EBITDA refers to earnings before interest, taxes, depreciation and amortization.

“On a pro forma basis to account for the Mirage Resorts acquisition in both periods, revenue grew two percent to $1.05 billion while EBITDA increased 5 percent to $324.8 million in the 2001 second quarter,” he explained.

Easily the jewel of its 18 gaming properties was the Bellagio, the $1.6 billion resort built as a monument to gaming guru Steve Wynn’s Las Vegas Strip successes. The beautiful facility had net revenues of $240.5 million and cash flow of $76.3 million. This was followed by the MGM Grand with net revenues of $198.2 million and a two percent increase in EBITDA to $60.1 million.

Seemingly showing the effects of the economic slowdown and the growth of Indian gambling in California, the company’s Primm properties showed a decline in net revenues from $62.6 million to $53.8 million and EBITDA of $20.9 million down to $11.5 million.

And in Detroit, the MGM Detroit Casino saw its profits fall by 22 percent reportedly due to an increase in competition. During the comparable period a year ago, the city’s third and newest casino, Greektown, had not been opened.

Still operating profits were $34.1 million on revenues of $88 million. This compared to last year’s $99.2 million in revenues and profits of $43.6 million.

Park Place Entertainment

Unlucky play in Atlantic City and mixed results at its Las Vegas properties resulted in a drop in quarterly earnings for Park Place Entertainment Inc. (PPE), the country’s largest gaming company.

The company reported net income of $48 million or $0.16 a share compared to last year’s $0.18 per share. EBITDA amounted to $310 million, down from last year’s $335 million.

Still, new president and CEO Tom Gallagher is optimistic. “The second-quarter results indicate that our properties in the major markets continue to drive solid results.” And CFO Scott Laporta added, “Our results continue to provide evidence that the major markets in the gaming industry are extremely resilient. Our analysis reveals that if we normalize table hold in the second quarter, we would have surpassed last year’s results.”

Particularly weak during the period was the Las Vegas Hilton, currently the object of a lawsuit over the proposed purchase of the property by Silverton Hotel/Casino owner, Ed Roski. The property’s EBITDA dropped 50 percent from $12 million to $6 million, this, the company said, was because the property was being repositioned from a high-end casino to a convention hotel. In order to cut expenses, the company said it was reducing its employees at the property by seven percent. This will eliminate about 220 jobs.

The Venetian

Continuing the concern that has plagued other properties such as The Rio, Park Place and to some degree MGM Grand, The Venetian’s operators, Las Vegas Sands Inc., blamed poor table hold as the primary reason for a decline in the company’s quarterly cash flow.

Consolidated earnings for the second quarter dropped from last year’s $46.5 million to the current $41.8 million. Total net revenue for the company during the second quarter of 2001 was $136.9 million, as compared to last year’s $142.7 million.

The “drop” for table games, according to Bill Weidner, president and chief operating officer, declined from $270.4 million to $259.8 million.

Cash flow for the period was $37 million whereas last year the number was $42.6 million.

The bright spot, said Weidner, was the Venetian’s room rates and room occupancy that were at an all-time record level. Room revenue for the period amounted to $56.4 million, an increase of 16.3 percent over last year’s $48.5 million.

Average daily room rate increased from $183 to $213.

“We continue to achieve record hotel occupancy and record average daily room rates from our combination of mid-week group and convention business, and weekend and holiday free and independent traveler revenues. Based upon current booking trends and information, and the demand for our all-suite rooms, we remain comfortable that our group room business trends remain strong,” Weidner said.

Station Casinos Inc.

Locals giant Station Casinos Inc. (STN) was hard-pressed by competition in the second quarter. That, and the loss of revenues from its two former Missouri properties, cost the company in both earnings and in EBITDA.

For the period, the company reported net revenues of $212.8 million compared to last year’s $244.3 million. Earnings, before extraordinary items, amounted to $0.18 a share compared to $0.33 last year. In EBITDA, the company declined from $$71.3 million to $58.5 million.

But the numbers failed to discourage management.

“Despite the competitive environment we’ve experienced in the Las Vegas market during 2001, and the challenge of assimilating three new acquisitions into our corporate culture, we remain confident in the prospects of our fundamental strategy and our position in this market,” said Frank J. Fertitta III, chairman and CEO.

“We are disappointed with our recent operating performance, but still expect to generate significant free cash flow in 2002 to opportunistically pay down debt, repurchase stock, or pursue new business opportunities,” he said.

Since last year, the company has added Santa Fe Station, the Fiesta and The Reserve to its growing list of properties while it sold to Ameristar Casinos Inc. (ASCA) its two Missouri riverboat operations. Also, the company is building a premier property in Green Valley that it expects to open in December.

On Friday, the company’s board of directors announced that it had authorized the repurchase of up to an aggregate of 10 million shares of its outstanding securities. These may be acquired either in the open market or in negotiated transactions.