When both MGM MIRAGE Inc. (MGG) and Mandalay Resorts Group (MBG) issued earnings pre-announcements advising investors that their earnings would fail to meet expectations, both Harrah’s Entertainment Inc. (HET) and Park Place Entertainment Corp. (PPE) decided to hold off, suggesting that the final quarter of calendar 2002 wasn’t really that bad.
Then last week, both companies issued their revenue reports with indications that the quarter was slightly below or at least equaled the experience of a year earlier. Still, both companies watched their share prices slump, as much from a challenging tax climate in Atlantic City as with their actual earnings.
Harrah’s Entertainment Inc. reported that net income slipped 2.2% in the fourth quarter while earnings for the entire fiscal year increased 12% to $235 million or $2.07 a share compared to 2001 when earnings were $209 million or $1.81 a share.
For the quarter, HET said it had net income of $53.9 million or $0.48 a share, slightly below the previous year’s $55.1 million or $0.49 a share.
Park Place Entertainment Corp. reported a net loss of $18 million for the quarter that equated to $0.06 a share. However, excluding one-time items such as accounting adjustments, the company would have shown a profit of $0.05 a share, surpassing the consensus of analysts who had expected a profit of $0.03.
Although the company officials said they were pleased with the business recorded in January, they were reluctant to forecast big turnarounds for the first quarter and full-year earnings, preferring to keep their expectations on the low end.
Harrah’s also took one-time charges during the Dec. 31, 2002 quarter including a $6.1 million charge related to the demise of National Airlines Inc.; a $5 million reserve for structural repairs at Harrah’s Reno, and weather-related weakness in northern Nevada.
Excluding those one-time charges, the company earned $60 million or $0.54 a share compared to last year’s $0.46 a share. Analysts had expected earnings of $0.57 a share.
But analysts became wary of both companies and their neighbors with properties in New Jersey when first-term Gov. James McGreevey proposed legislative changes that would increase the state’s gaming tax from 8% to 10% and would impose a 6% sales tax on all casino comps provided to their high-rollers.
Additionally, McGreevey announced that he would appoint a study committee to determine whether New Jersey’s racetracks would be permitted to install slot machines, a practice being considered by several of New Jersey’s neighbors.
The gaming industry’s response was one of outrage, especially after McGreevey had appeared at a gaming symposium and passed himself off as a strong supporter of casinos.
Park Place Entertainment’s CEO Wally Barr called McGreevey’s announcement a "back alley mugging."
Most property representatives announced an immediate halt to expansion and development plans until they have a better read on just how the governor’s proposals are received by the legislature. Some observers have suggested that because of budgetary problems faced by the state, casino operators may have to compromise by holding the line on the gaming tax but agreeing to the slot machine suggestion.
As for the earnings pre-announcements, MGM MIRAGE did report reduced earnings just slightly better than the pre-announcement range while Mandalay Resort Group, whose quarter ended on January 31, is suggesting that business might not have been as bad as previously thought. In fact, in a second pre-announcement issued last week, officials cited better than expected business and said earnings would be about $0.12 a share. The earlier guidance had estimated earnings to be $0.10 a share.
Slight drops in both operating income and earnings per share were reported by Aztar Corporation for the quarter ended on Dec. 31, 2002.
Earnings were listed as $0.31 a share compared to the previous year’s $0.33 a share while operating income was $27.9 million versus $30.3 million.
However, the company noted that during the 2002 fourth quarter, there were the customary 13 weekends while the comparison period, because of the way the calendar broke, contained 14 weekends.
Saying that he was pleased with the quarter’s results, Paul Rubeli, chairman and CEO, said that he could see a challenging 2003, particularly with the opening this summer of the Borgata, a $1 billion property being developed by Boyd Gaming Inc. (BYD) and MGM MIRAGE Inc. (MGG). However, he noted that the expansion of Tropicana Atlantic City will create the largest hotel and third-largest casino in Atlantic City.
Rubeli, a strong proponent of gaming on the New Jersey shore, tore into the proposal made by Gov. James McGreevey to increase the gaming tax. He said the governor was damaging the gaming industry just by suggesting the tax hike and he promised to put together a force that would defeat the move in the legislature.
As for redevelopment plans for Tropicana Las Vegas, Rubeli said the matter was still being studied and a decision is expected to be made during this calendar year.
Increased taxes and competition put a halt to high-flying Argosy Gaming Company (AGY), which not too long ago was the darling of Wall Street.
For the quarter ended on Dec. 31, 2002, the company had earnings of $0.56 a share on net income of $16.5 million compared to the previous year’s $0.70 a share on $20.7 million of income.
The company said it was negatively impacted by increase in taxes at its Joliet, Ill., riverboat and increased competition in the St. Louis, Mo., market place. And, in Lawrenceburg, Ind., where the company operates one of its most successful riverboats, the increase in taxes negated the benefits the boat experiences from its dockside operations.
Jim Perry, the company’s retiring CEO, commented, "It was certainly a challenging year, as significant tax increases and competitive pressures impacted both operating performance and capital plans at our largest properties. Coupled with the current economic environment, our focus on strong operations was more important than ever."
For the year, the company had net income of $71.5 million or $2.43 per diluted share as compared to $2.25 per diluted share on net income of $66.1 million for 2001. Revenue for the year increased 20.6% to $944.7 million, a jump of $161.3 million over the previous year.
Net income was up for the year but down drastically for the fourth quarter for Ameristar Casinos Inc. (ASCA). And the experience was strongly reflected in the company’s per share price which has dropped from a 52-week high in the low $30’s to its current level of $9 a share.
Net income for the fourth quarter was $5 million, a decline of 45% from last year’s $9.2 million. For the year, net income was $40.5 million, an increase of $7.3 million over 2001.
Diluted earnings per share was $0.19 less than half last year’s $0.40 a share. Analysts had expected per share earnings to be about $0.21.
Adversely impacting revenue, the company said, were inefficiencies associated with the initial operations of the new St. Charles (Mo.) facility, business disruption from ongoing construction of the enhancements being made to the casino, and non-gaming amenities at the Kansas City (Mo.) property. That, plus the U.S. economic slowdown, contributed to the company’s poor showing.
Craig Neilsen, chairman and CEO, had a positive view of 2003, saying, "We are implementing a number of revenue enhancement and cost reduction initiatives in order to further improve operating margins. We are confident the expanded and enhanced facilities at our Missouri properties will generate improved operating results in 2003. We are employing similar marketing and operating strategies at the Missouri properties that had led to strong returns at the Council Bluffs (Iowa) and Vicksburg (Miss.) properties following the completion of capital improvement projects at those properties. Adjusted operating income at Council Bluffs and Vicksburg increased by 37.6 percent and 65 percent, respectively from 2001 to 2002, and EBITDA at these properties increase by 28.3 percent and 45.5 percent, respectively, during the same period."
Benefiting strongly from its Bonusing Technology for the gaming industry, Acres Gaming Inc. (AGAM) reported record results for its second fiscal quarter and six-month period ended on Dec. 31, 2002.
Net income for the quarter was $2.3 million or $0.22 per diluted share, more than three times the $729,000 or $0.07 per diluted share reported a year earlier. Net income for the first half of the 2003 fiscal year was $2.8 million or $0.27 per diluted share compared to $1.1 million or $0.11 for the first half of 2002.
"Business is quite good," said Bud Glisson, company CEO. "We continue to expect earnings for the fiscal year to more than double last year’s earnings. Second quarter gross profit was a record for any quarter in the company’s history, and we have an estimated $19 million gross profit in our Dec. 31 order backlog. We’re aggressively investing in growth initiatives, adding staff and planning for a $3.3 million increase in second half expenses. We’re more confident than ever about our future."
Solid increases in revenues, resulting from a recent acquisition, were reported for the second fiscal quarter ended on Dec. 31, 2002, by Sands Regent Inc. (SNDS).
The company said revenues were $12.7 million, a 68% increase over last year’s $7.5 million. The increase was credited to the purchase of the Gold Ranch Casino and RV Resort in Verdi at the California state line near Reno, Nev.
For the first six months of fiscal 2003, the company reported revenues of $28.5 million, or $16.5 million more than last year.
During the second quarter, there was a loss per share of $0.04 versus a loss per share last year of $0.06.