Majestic Research

Bloomberg

Las Vegas Sands Posts Loss on Casino, Interest Costs

By Beth Jinks
Published: July 30, 2008

Las Vegas Sands Corp., the world’s largest casino company by market value, posted a second-quarter loss on expenses to run the new Venetian Macao and the Palazzo in Las Vegas and higher interest costs.

The net loss was $8.8 million, or 2 cents a share, compared with a profit of $34.4 million or 10 cents, a year earlier, Las Vegas Sands said today in a statement. Revenue climbed 81 percent to $1.11 billion from $612.9 million, missing the $1.13 billion average expected by 12 analysts.

U.S. consumers contending with higher gasoline prices and declining home values have curbed trips to Las Vegas since Sands opened the Palazzo in January. Competition has intensified in Macau, the world’s biggest gambling hub, where billionaire Chief Executive Officer Sheldon Adelson is building a $12 billion, 20,000-room complex of hotels and casinos.

“In Macau, Las Vegas Sands is going after both the mass market in big way, but also the VIP customers,” Matthew Jacob, an analyst with Majestic Research LLC in New York, said in a July 21 interview. “The mass market side of the business is going to take some time to grow.”

Excluding some costs, Las Vegas Sands earned 9 cents a share. Analysts surveyed by Bloomberg estimated 11 cents on average.

Las Vegas Sands fell $1.82, or 3.8 percent, to $46 at 5:40 p.m. after the results were released. Earlier, the shares rose $3.79, or 8.6 percent, to $47.82 at 4 p.m. in New York Stock Exchange composite trading. The stock has plunged 54 percent this year. 

Interest Costs

Interest expenses soared 63 percent as it paid more for loans for the Las Vegas, Macau and Singapore developments, Sands said.

The company plans to borrow $5.25 billion “primarily if not entirely in the Asian bank markets” to refinance its existing $3.3 billion Macau loan and complete construction on the next phase of that region’s development, Chief Operating Officer William Weidner said on a conference call today.

Las Vegas Sands “will not have liquidity problems,” Adelson said on today’s call. Adelson said he’s “evaluating alternatives” for additional cash if needed, without elaborating.

Depreciation and amortization charges soared to $119.1 million from $35.7 million because of the opening of the Venetian Macao and the Palazzo.

In Las Vegas, earnings before interest, taxes, depreciation, amortization, rent and other items, or adjusted Ebitdar, rose 28 percent to $106.6 million in the second quarter, from $83.2 million a year earlier, boosted by the Palazzo, the casino company said.

Sands Macao

At the Sands Macao, adjusted Ebitdar fell to $54.1 million, from $116.6 million, as less gamblers bet at its casino. The Venetian Macao reported Ebitdar of $140.2 million.

Las Vegas Sands wants to trim Vegas costs by $70 million to $90 million a year and cut about 1,500 Strip employees “by attrition, not by layoffs,” Weidner said today. The company is also reducing costs in Macau, he said.

The original Venetian is performing well, considering the “somewhat softer Las Vegas market overall,” Weidner said. The Palazzo continues to “ramp up,” he said.

The Las Vegas resorts have seen some “disappointing cancellations” and are shifting focus to specific sectors for group and convention bookings, Robert Goldstein, senior vice president who oversees the Nevada properties, said on today’s call.

“Certain segments within the group market are especially challenging—auto, financials, freight, transportation,” Goldstein said. “However pharmaceuticals, IT, fast food, insurance, biotech all seem to bode pretty well.”

Las Vegas Gamblers

Las Vegas gamblers bet $408.2 million at the tables at Sands’ two resorts in the quarter, 45 percent more than last year. They spent $916.1 million on slot machines, a 63 percent rise attributed to the second Strip casino.

Revenue per available room, a measure of rates and occupancy known as Revpar, fell 17 percent to $222 at the Venetian Las Vegas, which filled 90.6 percent of rooms, down from 100.9 percent, the company said.

Revpar averaged $226 at the Palazzo, which filled 92.9 percent of its rooms.

Macau regulatory changes, including new building license curbs will cause delays in some planned project approvals, executives said.

Next Stages

Las Vegas Sands is “aggressively” moving forward with the next stages of its Macau development, Adelson said. Some projects need to be redesigned to lower costs, he said.

The company is trying to attract more VIP gamblers, defined as those who spend more than HK$1 million ($128,000) per visit, by offering junket operators higher commissions and ``prudently’’ providing more credit, Weidner said.

Las Vegas Sands is increasing the frequency of its ferry service between Macau and Hong Kong to grow its “mass-market” business, executives said today. In July the boats have been running about 70 percent full, and about 90 percent on weekends.

More Chinese gamblers are playing slot machines, Adelson said. Monthly slot income at the Venetian Macau is more than the Venetian Las Vegas, he said.

“It’s true that the Chinese will play, and will learn to play more, and that they like it,” he said. “We’re doing very well on the slots.”