CASINO EARNINGS: MGM hits, Station misses

3 Nov 2006

by Jennifer Robinson

LAS VEGAS -- Executives of Station Casinos found themselves on unfamiliar footing Thursday, explaining to investors and analysts why their company turned in weaker-than-expected financial results in the third quarter.

After 18 consecutive quarters of beating Wall Street's income and revenue estimates, Station fell short of expectations in the three months that ended Sept. 30.

A 25 percent gain in net revenue wasn't enough to lift Station's quarterly net income, which slumped to $19.2 million, compared with $38.9 million in the same quarter a year ago.

The company posted earnings per share of 34 cents, compared with 56 cents in the third quarter of 2005. Excluding the costs of canceling a residential project at Red Rock Resort in Summerlin and expenses related to developing Native American gaming opportunities, the company reported earnings per share of 38 cents, down from an adjusted 63 cents in the same quarter a year earlier.

Station's quarterly net revenue rose 25.2 percent, to $345.9 million from $276.3 million.

A survey from Thomson Financial placed analyst expectations at earnings of 51 cents a share on revenue of $350.7 million.

Cash flow, defined as earnings before interest, taxes, depreciation and amortization, was $126.7 million, an increase of 7.6 percent over companywide cash flow of $117.8 million in the third quarter of 2005.

Glenn Christenson, Station's chief financial officer, blamed the missed financial targets on "fairly isolated" reasons.

Record gasoline prices, rising interest rates and slower housing appreciation in the quarter tightened consumers' grip on their purse strings. Station's customer spending per visit increased, Christenson said, but not at the same rates it rose in the second quarter.

Christenson declined for competitive reasons to disclose spending per visit.

Longer-than-expected construction disruptions at Santa Fe Station, a northwest Las Vegas property undergoing a $120 million expansion and renovation, were responsible for about half of Station's 8 percent shortfall in same-store cash flow. Same-store revenue was off 1 percent in the quarter.

Christenson added that Station grappled in the quarter with the costs of serving the flood of customers that followed Red Rock's April opening. The company's properties also contended with major new locals competitors, including the 10-month-old, 1,350-room South Point and the 1-month-old, 347-room Fantasy Tower at the Palms.

"(Station's) results are indicative of 'absorption' issues associated with supply additions in (the locals market) and the expenses associated with the newly opened Red Rock," wrote Steve Kent, a gaming analyst with Goldman, Sachs & Co., in a report.

Though starting up Red Rock helped boost Station's quarterly operating costs 34 percent, from $200.9 million to $268.9 million, company executives said they were pleased with the new property's performance. The resort's $44 million in cash flow from April through October bested the cash flow the company's Green Valley Ranch Resort had in the 12 months following its 2001 opening. The company's quarterly report predicted $90 million to $95 million in cash flow in Red Rock's first year of operation, with a return on investment of 11 percent.

Christenson said he didn't expect overall customer spending at Station properties to change in the near term.

The company's long-range prospects look stronger, though, he said.

With $16 billion of projects in development on the Strip, Station officials expect significant job formation both on and off the resort corridor, as infrastructure and the service sector expand to accommodate the new resorts.

"More jobs will help fuel population growth, and a large part of those residents moving here will turn out to be Station Casinos customers," Christenson said.

Christenson predicted the Las Vegas locals-gaming market will rake in annual revenue of $3.8 billion by 2010, up from $2.7 billion in 2005.

"When it comes to the fundamentals, people will continue to move here," Christenson said. "There are real barriers to entry in this (gaming) market. It's a classic supply-and-demand situation. Both our company and others in the local market will continue to benefit from that."

Kent agreed Station would likely improve its performance in the future.

"We urge investors to focus on (Station's) long-term growth story, which includes tribal management agreements, developable land in Las Vegas and potential in Reno," Kent wrote.

Analyst Joe Greff of Bear Stearns gave a similar forecast.

"We continue to ask ourselves, 'Will the Las Vegas locals market be better a year from now?' " Greff wrote in a report. "We think the answer is yes, and thus are sticking with our 'outperform' rating. Population and job growth in Clark County remain strong and the locals market should get a stimulus from the massive investment on the Strip."

Station shares fell $1.67, or 2.72 percent, to close at $59.70 Thursday on the New York Stock Exchange.

Language: English Location: Currency: > edit my preferences Home Online Slots Live Dealer Games Online Casinos Online Poker Online Bingo Games Lotteries Sports & Racebooks Fantasy Sports Forex Betting Exchanges Spread Betting Binary Options Exclusive Bonuses Weekly Newsletter Online Gaming News Payment Methods Gaming Software Gaming Site Owners Gaming Jurisdictions		Bonuses! New games! Gossip! And all the player news you can handle. Sign up NOW! View the current issue
	CASINO EARNINGS: MGM hits, Station misses 3 Nov 2006 <a href='https://ad.casinocity.com/adclick.php?n=a21efcd1'><img src='https://ad.casinocity.com/adview.php?what=-site:vendors/width:250/RON&n=a21efcd1' border='0' alt='' /></a> by Jennifer Robinson LAS VEGAS -- Executives of Station Casinos found themselves on unfamiliar footing Thursday, explaining to investors and analysts why their company turned in weaker-than-expected financial results in the third quarter. After 18 consecutive quarters of beating Wall Street's income and revenue estimates, Station fell short of expectations in the three months that ended Sept. 30. A 25 percent gain in net revenue wasn't enough to lift Station's quarterly net income, which slumped to $19.2 million, compared with $38.9 million in the same quarter a year ago. The company posted earnings per share of 34 cents, compared with 56 cents in the third quarter of 2005. Excluding the costs of canceling a residential project at Red Rock Resort in Summerlin and expenses related to developing Native American gaming opportunities, the company reported earnings per share of 38 cents, down from an adjusted 63 cents in the same quarter a year earlier. Station's quarterly net revenue rose 25.2 percent, to $345.9 million from $276.3 million. A survey from Thomson Financial placed analyst expectations at earnings of 51 cents a share on revenue of $350.7 million. Cash flow, defined as earnings before interest, taxes, depreciation and amortization, was $126.7 million, an increase of 7.6 percent over companywide cash flow of $117.8 million in the third quarter of 2005. Glenn Christenson, Station's chief financial officer, blamed the missed financial targets on "fairly isolated" reasons. Record gasoline prices, rising interest rates and slower housing appreciation in the quarter tightened consumers' grip on their purse strings. Station's customer spending per visit increased, Christenson said, but not at the same rates it rose in the second quarter. Christenson declined for competitive reasons to disclose spending per visit. Longer-than-expected construction disruptions at Santa Fe Station, a northwest Las Vegas property undergoing a $120 million expansion and renovation, were responsible for about half of Station's 8 percent shortfall in same-store cash flow. Same-store revenue was off 1 percent in the quarter. Christenson added that Station grappled in the quarter with the costs of serving the flood of customers that followed Red Rock's April opening. The company's properties also contended with major new locals competitors, including the 10-month-old, 1,350-room South Point and the 1-month-old, 347-room Fantasy Tower at the Palms. "(Station's) results are indicative of 'absorption' issues associated with supply additions in (the locals market) and the expenses associated with the newly opened Red Rock," wrote Steve Kent, a gaming analyst with Goldman, Sachs & Co., in a report. Though starting up Red Rock helped boost Station's quarterly operating costs 34 percent, from $200.9 million to $268.9 million, company executives said they were pleased with the new property's performance. The resort's $44 million in cash flow from April through October bested the cash flow the company's Green Valley Ranch Resort had in the 12 months following its 2001 opening. The company's quarterly report predicted $90 million to $95 million in cash flow in Red Rock's first year of operation, with a return on investment of 11 percent. Christenson said he didn't expect overall customer spending at Station properties to change in the near term. The company's long-range prospects look stronger, though, he said. With $16 billion of projects in development on the Strip, Station officials expect significant job formation both on and off the resort corridor, as infrastructure and the service sector expand to accommodate the new resorts. "More jobs will help fuel population growth, and a large part of those residents moving here will turn out to be Station Casinos customers," Christenson said. Christenson predicted the Las Vegas locals-gaming market will rake in annual revenue of $3.8 billion by 2010, up from $2.7 billion in 2005. "When it comes to the fundamentals, people will continue to move here," Christenson said. "There are real barriers to entry in this (gaming) market. It's a classic supply-and-demand situation. Both our company and others in the local market will continue to benefit from that." Kent agreed Station would likely improve its performance in the future. "We urge investors to focus on (Station's) long-term growth story, which includes tribal management agreements, developable land in Las Vegas and potential in Reno," Kent wrote. Analyst Joe Greff of Bear Stearns gave a similar forecast. "We continue to ask ourselves, 'Will the Las Vegas locals market be better a year from now?' " Greff wrote in a report. "We think the answer is yes, and thus are sticking with our 'outperform' rating. Population and job growth in Clark County remain strong and the locals market should get a stimulus from the massive investment on the Strip." Station shares fell $1.67, or 2.72 percent, to close at $59.70 Thursday on the New York Stock Exchange. Copyright GamingWire. All rights reserved.