Station Casinos earnings spur Wall Street investor boost

Oct 26, 2004 7:15 AM

Investors were quick to reward gaming companies whose quarterly reports were healthy while they were reluctant to support companies that failed to make their pre-announced marks or even hinted that there might be problems ahead.

Case in point was Station Casinos Inc. (STN) that not only reported substantial growth through the third quarter that ended on Sept. 30 but also revealed that revenues from Thunder Valley Casino, the property that it manages for the United Auburn Indian Community near Sacramento, Cal., will increase since the casino now has 800 more slot machines, a 40% increase that resulted from a new gaming compact negotiated with Gov. Arnold Schwarzenegger.

Diluted earnings for the third quarter jumped 31% to $0.46 per share, surpassing not only last year’s earnings but also topping the consensus of analysts whose estimate was $0.44 per share.

Same store business at its Las Vegas casinos increased 14% over the prior year’s third quarter while the company set an EBITDA (earnings before interest, taxes, depreciation, amortization) record of $90.7 million, a jump of 19% over last year.

Guidance for the fourth-quarter raised EBITDA to between $94 million and $98 million with earnings per share rising to between $0.48 and $0.52 per share.

The market responded to the good news by pushing the price of the company’s shares over $50.

Harrah’s Entertainment

A strong Las Vegas market and the company’s customer loyalty programs were given as reasons for a strong third quarter experienced by Harrah’s Entertainment Inc. (HET).

Income from operations for the third quarter rose 26.9% to a record $257.8 million from last year’s $203.2 million. Diluted earnings per share reached $1.06, or nearly 18% higher than the $0.90 per share reported in the third quarter of 2003.

In reporting the fiscal experience, Gary Loveman, president and CEO, noted that the numbers included the experiences of the three Horseshoe casinos the company acquired by July 1.

"Strategic acquisitions, capital investments and market-leading technological and marketing capabilities all played a role in propelling Harrah’s Entertainment to record results," Loveman said. He pointed to the Horseshoe acquisitions as playing a "significant role" in the quarter’s revenue and operating income gains."

Loveman also announced that Chairman Philip Satre will retire on Jan. 1, 2005 and that he, Loveman, will add the chairman’s duties to those he currently performs.

Caesars Entertainment

Caesars Entertainment Inc. (CZR), currently in the process of being acquired by Harrah’s Entertainment, also surprised investors with third quarter financial results that exceeded those forecast by analysts.

For the third quarter, Caesars reported net income of $58 million or $0.18 per fully diluted share, an increase of 21% over last year’s $48 million or $0.16 per share.

Adjusted net income for the period included $9 million from the Atlantic City Hilton and Bally’s Tunica (which the company has announced that it will sell); $9 million asset impairments related to the write-down of the book value of Caesars Tahoe; $6 million in expense related to the pending merger with Harrah’s; $5 million in income tax expense related to the settlement of a dispute involving Lakes Entertainment Inc, and $4 million in pre-opening expense related to the production of the musical "We Will Rock You" at Paris Las Vegas, the company reported.

The two casinos being sold are going to the Colony Capital LLC, the company that earlier this year acquired the Las Vegas Hilton Hotel/Casino from Caesars.

MGM MIRAGE

Wall Street disagreed with Terry Lanni, chairman and CEO of MGM MIRAGE Inc. (MGG) when he said that it would be a mistake to characterize the fourth quarter projection as a letdown.

That didn’t stop investors from sending the shares down sharply in trading since the company’s projection of between $0.35 and $0.45 per share earnings in the fourth quarter was significantly less that the $0.50 being forecast by gaming analysts.

Still the earnings for the third quarter were of the blowout status, reaching $0.89 a share compared to last year’s $0.31 a share. But the earnings were in line with analysts’ estimates.

Revenues for the quarter rose 6% to $1.04 billion primarily due to strong results in the Las Vegas area where the company will soon be acquiring the properties owned by Mandalay Resort Group (MBG). It’s this acquisition and the borrowing needs to accomplish it that had investors worried enough to push the stock down from its mid-$50 per share price.

Alliance Gaming

Suffering from its restructuring position and poor results from its primary subsidiary, Alliance Gaming Inc. (AGI) reported a loss for the third quarter, fulfilling its previously announced quarterly failures.

The company’s previous president and CEO resigned during the quarter and is being replaced by an experienced gaming executive, Richard Haddrill. During the conference call associated with the quarterly fiscal report, Haddrill announced that the company has undertaken an extensive review of its operations and a strategic planning process in order to take advantage of current and emerging market opportunities.

Of particular concern was the quarter’s operating loss of $6.4 million compared to the $21.9 million operating income reported in the comparable quarter of 2003.

Officials noted that its Bally Systems saw its revenues decrease by 35% from the prior year and that the declines were primarily in the area of hardware sales.

Also, as previously reported, the company was responsible for a $7.4 million jury award resulting from damages in a patent infringement suit brought against the former United Coin Machine Co.