Two weeks ago, with the prospects of additional sales in Pennsylvania and California, International Game Technology, the world’s largest manufacturer of slot machines, remained attractive among gaming investors. Individual shares were selling at $37.
By Friday, after the company had issued its operating results for its fiscal third quarter — a period when the company showed 22% in operating income — shares of IGT struggled to remain above the $30 level. In fact, during that day’s trading, the price fell to $28.87 a share with nearly 13 million shares changing hands. Prospects improve on Monday following an upgrade by CIBC World Markets.
Showing far more strength on Wall Street, after reviewing their quarterly experiences with analysts and investors were MGM MIRAGE Inc. (MGG), Harrah’s Entertainment Inc. (HET), and Caesars Entertainment Inc. (CZR). Despite a sluggish market, MGG was able to move upward to the $45 level while Harrah’s moved marginally to $46.35 and Caesars, set to be acquired by HET, remained at a level that was just under $15 a share.
Yet, all three operating gaming companies had blowout quarters, largely because of the dynamic market being experienced by the Las Vegas Strip.
MGM MIRAGE’s second quarter of fiscal 2004 saw its profits nearly double while strong performances by the company’s casinos and hotels. Net income reached $104.7 million or $0.72 a share compared to last year’s $53.8 million in net income or $0.15 a share. The per share earnings easily exceeded the analysts’ consensus of $0.58 a share.
In a breakdown, the company said casino revenue rose 8% to $551.7 million from the $508.9 reported in 2004 while non-casino revenue was up 12% to $520.8 million from $465.2 million.
Jim Murren, the company’s president and CFO, was quoted as saying, "We are only seeing glimpses of what Las Vegas will become as a global tourist destination."
That same attitude was seen at Harrah’s Entertainment Inc. which reported second-quarter profits of $90.2 million, or $0.79 a share. This represented an increase of nearly 18% over the second quarter of 2003.
Carrying the greater weight for the company were its properties in southern Nevada where revenues rose 23.2%. This helped offset a drop of 5.9% at the company’s properties in Atlantic City.
In making a $9.44 billion offer to acquire Caesars Entertainment Inc., the company’s president and CEO Gary Loveman underscored what he described as a "big opportunity" to raise the performance of the Caesars hotels through the use of Harrah’s database and technology.
Harrah’s blamed the decline in business at its Atlantic City properties on the additional competition being provided by Borgata Hotel/Casino and Spa. However, gaming analysts were quick to point out that the Borgata had failed to grow the market sufficiently to avoid cannibalizing some of the other casinos’ clientele.
The company is looking forward to expanding gaming opportunities in Pennsylvania and Rhode Island, as well as in Louisiana where the company has installed 1,400 slot machines at Louisiana Downs racetrack, and in New Orleans where construction has begun on a $142 million, 450 room luxury hotel tower at Harrah’s New Orleans casino.
But, it is in Las Vegas that the company sees developing its future with the acquisition of such properties as Caesars, Bally’s and Paris Las Vegas, as well as other properties.
Benefiting from the second quarter Las Vegas boom, Caesars reported net profit of $148 million, or $0.47 a share, compared to last year’s $41 million or $0.14 a share. However, the profit included an $87 million gain that resulted form the sale of the Las Vegas Hilton.
Without the gain, the adjusted profit was $60 million or $0.19 a share. Analysts had estimated that the per share profit would be $0.17.
Boosting the company’s quarterly numbers were the Western Region’s seven casinos, including those in Las Vegas, while the Eastern Region, including the company’s properties in Atlantic City, fell 16%.
Back to International Game Technology, the company reported net income of $141.1 million or $0.38 a share, as total income grew 10% to $618.9 million.
But, analysts focused more on the IGT’s sale of 35,100 machines worldwide during the quarter, down from last year’s 37,500 machines. In the U.S., the company said it sold 22,500 machines compared to the 24,200 machines in the comparable quarter of 2004.
Internationally, machine shipments for the quarter totaled 12,600 compared to last year’s 13,400 machines. There were fewer shipments in the U.K., and Japan that offset increases in Latin America and other places.
Flat growth prospects were seen for the next several quarters before a pick up in sales due to Indian compact agreements in California and new legislation in Pennsylvania kick in.
The price of IGT shares nearly doubled during the past 52 weeks from a low of $24.10 to a high of $47.12 before settling in on Friday at $30.05.
The least volatile of the major gaming company shares were those of Harrah’s that saw a 52-week high of $46.59 and a low of $39.49. At the close of business on Friday the shares were trading at $46.35 each.
Shares in Caesars Entertainment also saw the price double during the past 52 weeks, going from a low of $8.22 a share to a high of $16.49. Harrah’s has offered $17.75 per share, if the acquisition passes all regulatory agencies, but the shares on Friday closed at $$14.78 share.
And MGM MIRAGE, looking to take over the Mandalay Resort Group’s casinos on the Las Vegas Strip, has remained close to its 52-week high of $49.78, up from a low of $33.63 a share. On Friday, the closing price was $45.