Investors ignore poor quarter; bet on gaming futures

Feb 5, 2002 7:52 AM

Poor quarterly financials failed to deter gaming company investors last week with most of the majors edging upward, spurred on by some gaming analysts.

MGM MIRAGE Inc. (MGG) jumped $0.74 to close at $33.30 Friday after reporting earnings of $0.18 a share for the fourth quarter of 2001, a number that was significantly lower than last year’s $0.43 a share.

Park Place Entertainment Corporation (PPE) improved to $9.80 from the previous $9.70 after telling investors the company had a net loss of $16 million or $0.5 a share for the period ended on Dec. 31. Last year, the fourth quarter loss was $0.02 a share.

Station Casinos Inc. (STN), the leading “locals” casino operator, generating nearly 50% of the total revenues reported by all casinos that deal with Greater Las Vegas residents, said its revenues fell from last year’s $243.4 million to $204.4 million and resulted in earnings for the quarter of $0.13 a share. Last year’s per share earnings amounted to $0.18. It’s shares, which had been moving upward for a week, continued to move forward reaching $13.98 by the close of business on Friday.

Coming in with a 69% increase in earnings for the period was Argosy Gaming Co. (AGY), a company that has no exposure to Las Vegas but operates riverboats from Illinois to Louisiana.

Earnings for the quarter reached $20.7 million or $0.70 a share compared to $12.2 million or $0.42 a share during the fourth quarter of 2000. Its share price Friday closed at $36.30, an increase of $0.68 for the day.

During conference calls made by each company to report their financial experiences, each company executive saw their positions improving since the Sept. 11 attacks that caused many Americans to avoid flying.

“Revenue and cost strategies deployed in the weeks following September 11th have had the desired results,” said Terry Lanni, chairman and CEO of MGM MIRAGE. “Current trends in our resorts indicate that casino and non-casino business should continue to improve throughout 2002,” he said.

Tom Gallagher, president and CEO of Park Place Entertainment, agreed it was a “challenging quarter,” but was pleased that “we’ve demonstrated in the past few months that our geographic and demographic diversity give Park Place an important advantage. Both our Atlantic City and Mid-South casino resorts showed their resilience in the fourth quarter.”

The amount spent per customer during the quarter posed a challenge to Station Casinos, reported Glenn Christenson, executive vice president and CFO. “Lower room rates” caused by the downtown in the economy reduced revenues even thought “hotel occupancy levels increased to 88% from the 86% in the prior year.”

Christenson said he continued to be “very excited” about the company’s strategy. “We have 10 properties strategically located throughout one of the fastest growing metropolitan areas in the country,” he said.

“During 2002, our primary focus will be on improving operations and shrinking the company’s capital base, either through the reduction of debt or the repurchase of stock,” Christenson added.

James Perry, president and CEO of Argosy said that despite the “tragic events of Sept. 11 and the recessionary economic environment,” the company showed a 7% year-over year increase in revenues. “Our focus on operations is delivering impressive results ”” allowing us to maintain margins and increase shareholder value,” he said.

Because of utilizing a different fiscal calendar, Mandalay Resort Group (MBG), the other major player on the Las Vegas Strip, won’t report its quarterly experience for another month. However, in light of the financial reports from its competitors, the company was seen by some analysts as having the greatest opportunity of benefiting from a Las Vegas recovery. During very light trading on Friday, MBG moved up $0.27 bring the closing price to $27.32.

Also reporting last week was WMS Industries Inc. (WMS). The company listed net income at $3.3 million or $0.10 a share for the second quarter of its fiscal year. This compared with last year’s $11 million or $0.34 a share.

During the quarter, the company received complaints that some of its machines were not functioning properly, causing the company to institute an immediate corrections strategy.

“As we indicated,” explained Brian Gamache, president and CEO, “our quarterly results continued to be impacted by issues related to the software anomalies. We are implementing a comprehensive plan to improve the technology foundation for our products.”

On Monday, Penn National Gaming Inc. (PENN), whose stock price during the past 52 weeks has moved from a low of $10 to a high of $32.99, reported record earnings of $5.6 million, or $0.35 a share compared to last year’s $0.18 a share.

Particularly strong during the period was the growth in EBITDA (revenues before interest, taxes, depreciation and amortization) that reached $28.7 million, an increase of $72.6%.