Majestic Research

Reuters

MGM Mirage 1st-Qtr Profit Misses View

By Deena Beasley
Published: May 03, 2007

MGM Mirage Inc., the world’s No. 2 casino operator, posted weaker-than-expected quarterly earnings on Thursday, on lower gambling revenue at its mass-market casinos in Las Vegas, sending its shares down 3 percent.

Net income in the first quarter rose 17 percent to $168.2 million, or 57 cents per share, from $144.0 million, or 49 cents a share, a year earlier.

Las Vegas-based MGM said diluted earnings per share from continuing operations were 55 cents, below average analyst expectations of 63 cents, according to Reuters Estimates.

“MGM is seeing weaker results on the Las Vegas Strip at a lot of its mass-market properties,” said Matthew Jacob, an analyst at Majestic Research.

He said consumers likely to frequent casino resorts such as Excalibur and Circus Circus are feeling pinched by higher gasoline prices and interest rates.

MGM Chief Financial Officer Jim Murren, speaking on a conference call, said quarterly results were also affected by closures early in the quarter of a key highway linking Southern California to Las Vegas.

He also said the company expects operating trends, including those for the Las Vegas Strip, to remain strong in the second quarter.

JP Morgan analyst Harry Curtis said high-end play went to casinos run by Wynn Resorts Ltd. and Las Vegas Sands because those companies, which operate casinos in Macau, were able to cross-market to Asian high-rollers.

MGM Chief Executive Terry Lanni agreed that MGM will be at a disadvantage until its first of two casinos planned in the Chinese gambling enclave of Macau casino opens in the fourth quarter of this year. MGM has a 50-50 partnership with Pansy Ho, the daughter of Asian gambling tycoon Stanley Ho.

MGM’s net revenue, which deducts promotional expenses, rose 9 percent to $1.93 billion. Analysts had expected revenue of $1.95 billion.

MGM said fourth-quarter gambling revenue rose 4 percent, but decreased 6 percent excluding the Beau Rivage casino in Mississippi, which reopened at the end of August.

Table games volume decreased 7 percent, excluding the Beau Rivage, which had been closed after Hurricane Katrina.

Strip properties MGM Grand and Mandalay Bay posted strong gains in margins, partially offset by declining results at Mirage, New York-New York and Excalibur, David Katz, an analyst at CIBC World Markets, said in a research note.

MGM’s revenue per available room, a key measure of hotel performance, rose 9 percent at its Las Vegas Strip properties.

In addition to its Nevada operations, MGM owns a casino in Detroit and has a joint venture with Boyd Gaming Corp. to run the Borgata hotel-casino in Atlantic City, New Jersey.

The company is constructing a 66-acre Las Vegas CityCenter project, which has an estimated budget of $7.4 billion, although MGM expects to make back $2.7 billion through the sale of residential units.

The company’s shares were down $2.12, or 3 percent, at $66.25 early on the New York Stock Exchange.

Before Thursday, MGM’s stock was up about 19 percent, compared with a drop of about 4.5 percent for the Standard & Poor’s Casinos Gambling index.