‘Dividends’ spark investor interest in gaming companies

Jul 29, 2003 6:19 AM

Gaming companies have been reporting their quarterly financial experience over the past couple of weeks and although investors paid their usual attention to revenue and income numbers the magic word became "dividends."

Mandalay Resort Group (MBG), whose quarter doesn’t end until July 31, was the first to rattle the industry when it announced that it planned to pay a modest dividend.

But, Station Casinos Inc. (STN) jolted their competitors for the investors’ dollars by declaring a $0.50 cent per share annual dividend. The market reacted immediately on Wednesday by pushing Station shares up 9% on the day.

Friday, Harrah’s Entertainment Inc. (HET) directors declared a $0.30 quarterly cash dividend, or about 40% of the company’s 2003 project net income.

The announcement came just three days after Harrah’s had blamed higher taxes in Illinois and Indiana for a decline in the company’s profits for the second quarter that ended on June 30. The company reported net income of $76.9 million or $0.69 a share compared to last year’s $86.1 million or $0.75 a share.

"The company’s overall gaming tax expense rose due to recently enacted gaming tax increases in Illinois and Indiana and scheduled increases in Iowa and Louisiana," said company CEO Gary Loveman.

Helping to partly offset bad weather that affected its Reno-Tahoe properties, Loveman said, were record results in Las Vegas and Atlantic City operations. He said same store revenue grew a "tepid" 0.6%, the lowest amount recorded in recent years.

At the time, Loveman, pressured by analysts to reveal the company’s position on paying a dividend, announced that the matter would be taken up by directors at their meeting later in the week. In revealing the dividend, Loveman noted that the move reflected "the tremendous financial flexibility our company possesses both to return significant amounts of money to our shareholders and to invest for growth in existing market, new jurisdictions and through acquisitions."

Friday’s announcement sent Harrah’s stock zooming upward by $2.02 to $43.42 a share. And on its wings were other gaming stocks that attracted investor interests. Aztar Corp. (AZR) that had reported solid earnings earlier, moved up $1.19 a share to $18.79; Isle of Capri Inc. (ISLE) gained $0.95 a share to $17.12; Mandalay Resort Group rose $1.19 a share to $34.47, and even MGM MIRAGE Inc. (MGG) that earlier had said it would retain its cash to utilize in other ways rather than paying dividend to stockholders, was up $1.04 to $34.87.

Station Casinos

While declaring their intention to pay dividends, company officials reported that earnings for the quarter ended on June 30 had increased by 150%, primarily due to the huge success of the company’s Indian casino in northern California.

Station posted a profit of $20.6 million or $0.33 a share for the quarter compared to last year’s $8 million or $0.13 a share. Analysts had been expecting earnings to be in the range of $0.20 to $0.24 a share.

Revenue for the second quarter rose to $210 million from $197.5 million. Providing a major impact on revenue was the $4.9 million the company received as its management fee of Thunder Valley Casino that is owned by the United Auburn Indian Community and which was built with funding provided by Station Casinos. The management fee was earned during just 22 days of operation.

As for the locals casinos operated in Las Vegas by the company, officials said same-store revenues increased 3% over last year’s numbers for the same period.

The company said the first dividend of $0.125 per share will be paid Sept. 4 to shareholders of record on Aug. 14.

Park Place Entertainment

Earnings for the second quarter fell into the high end of the company’s previous guidance and officials of Park Place Entertainment Corp. (PPE) said they were pleased that the war in Iraq and the SARS outbreak did not affect their business as badly as predicted.

Net profit for the period being reported was $41 million, or $0.14 a share compared to last year’s $96 million or $0.31 a share. A month earlier, the company had raised its guidance for the period from $0.07 to $0.11 a share to $0.11 to $0.15 a share.

Revenues for the period were flat at $1.19 billion. The company said earnings were depressed in the western part of their gaming world and blamed the decline on slow travel in the early part of the quarter, as well as low table game play and a house losing streak.

Coupling the first two quarters, the company reported net income of $82 million, or $0.27 a share. Last year, for the first six months of the fiscal year, the company reported earnings of $136 million or $0.45 a share.

The company said it was buoyed by the results experienced at Caesars Palace with the introduction of the Celine Dion "New Day" show. CEO Wally Barr said, "Caesars Palace reported increasing volumes and improving trends in other key metrics."

Penn National Gaming

Excluding the impact of its recent purchase of a Louisiana casino, Penn National Gaming Inc. (PENN) reported record earnings for the second quarter that ended on June 30.

Net revenues for the period were $325 million, an increase of 98% over last year’s $164.1 million. And, net income rose to $15.5 million or $0.38 a share as against last year’s $9.2 million or $0.23 a share.

The company said the income was in line with previously revised guidance and that "all Penn National Casino Properties owned for more than a year posted EBITDA (earnings before interest, taxes, depreciation and amortization) gains."

CEO Peter Carlino again expressed his outrage at the tax increases imposed on gaming shortly after the company took control of the Hollywood riverboat casino in Aurora, Ill. Because of the tax boost, "we were forced to make several changes intended to preserve our investment in that market," Carlino explained.

He also noted that late in the quarter, the company had increased the number of slot machines at its Charles Town Racetrack by 26%.

Kerzner International

Badly affected by the decline in travel following the 9/11 terrorists attacks, Kerzner International Limited (KZL) reported a return to normal travel patterns during the second quarter of 2003. During the period the company reported record net income of $22.8 million, or $0.78 a share. While travel lagged in 2002, the company had net income of $9.8 million or $0.34 a share.

Butch Kerzner, company president, said the company experienced record gross revenue and EBITDA during the quarter that were up 6% and 10% respectively during the period. "And revenue per available room at Atlantis increased by 2%."

He said the company was impressed with the business at Atlantis and was now encouraged to "begin the next phase of expansion on Paradise Island in the third quarter."

Riviera Holdings

Riviera Holdings Corp. (RIV), operator of gaming properties in Las Vegas and Black Hawk, Colo., reported declines in net revenues and income for the fiscal second quarter of 2003.

The company said net revenues fell $1.3 million to $48.3 million from last year’s $49.7 million. The net loss was $2.4 million or $0.70 a share compared to last year’s loss of $1.1 million or $0.32 a share.

Reduced EBITDA was noted for both Las Vegas, down $1.1 million or 14.7% and for Black Hawk, which fell $239,000 or 6.4%.

Commenting on the quarterly results, Bill Westerman, chairman and CEO, said, "With $21 million of cash and $30 million available under our line of credit, we have the financial resources to weather any continued adverse business conditions and to fund the equity portion of our anticipated projects."

Trump Hotels & Casinos

Struggling under heavy debt, Trump Hotels & Casino Resorts (DJT), with three major properties in Atlantic City, reported consolidated income for the second quarter ended on June 30 of $47.2 million compared to $55.6 million in the second quarter of 2002. Consolidated net loss was $10 million or $0.46 a share compared to net income last year of $200,000 or $0.01 a share.

For the six months of the fiscal year, the company said consolidated net revenues amounted to $585.7 million compared to $603.4 million in the previous year. Income for the period was $75.5 million, down from last year’s $103.8 million.

Explaining the declines, Donald Trump, chairman, president and CEO, said, "April 2003 showed a continuation of the first quarter negative trends. The Iraqi War and unseasonable weather contributed to lower operating results in the first month of the quarter. However in May and June the company-wide gaming revenue rebounded to prior year levels.