Majestic Research

Bloomberg

MGM Mirage First-Quarter Profit Lags Behind Estimates

By Danny King and Josh Fineman
Published: May 03, 2007

MGM Mirage, Las Vegas’ largest casino owner, reported first-quarter profit that rose less than analysts estimated as vacationers pared spending on gambling.

Net income increased 17 percent to $168.2 million, or 57 cents a share, six cents below estimates. Profit a year earlier was $144 million, or 49 cents.

Gambling revenue at Las Vegas resorts such as Circus Circus and Excalibur slowed as vacationers pared spending on the Strip, the city’s main gambling area. MGM is building a casino in Macau to reduce dependence on the U.S. and benefit from the growing Chinese market.

“The miss was entirely due to lower-than-expected casino revenue in Vegas,’’ Harry Curtis, an analyst at JP Morgan Securities Inc., wrote in a note. “Casino results should improve, particularly once MGM Macau opens later in the year.’’

First-quarter sales rose 8.7 percent to $1.93 billion, trailing the $1.95 billion estimate of analysts surveyed by Bloomberg.

Shares of MGM Mirage, which is based in Las Vegas, fell $1.95, or 2.9 percent, to $66.37 at 12:01 p.m. in New York Stock Exchange composite trading. The stock has jumped 52 percent in the past 12 months.

Gambling Revenue

Gambling revenue fell 6 percent excluding contributions from Beau Rivage, which reopened last year after damage caused by Hurricane Katrina.

“We are not satisfied with the gaming numbers in the first quarter,’’ Chief Financial Officer James Murren said on a conference call with analysts and investors.

Including Beau Rivage, gambling revenue rose 4 percent. Table games volume decreased 7 percent excluding Beau Rivage.

“The properties on the Strip that cater to the mass market or lower-end segment of the business seem to have been struggling,’’ said Matthew Jacob, a casino analyst at Majestic Research in New York. Those vacationers “may be a little more sensitive to pressures on their discretionary income such as higher gasoline prices and higher interest rates.’’

The Las Vegas Strip’s gambling revenue for the nine months ended March 31 rose 7 percent, slower than the 15 percent growth rate for the 12 months through June 2006.

Las Vegas Strip results in April improved “nicely,’’ Murren said on the call. Slots were up “solidly’’ in April and the company expects slot revenue to increase in the second quarter, he added.

MGM Grand Macau

MGM Mirage’s $1.6 billion MGM Grand Macau is scheduled to open in the fourth quarter. In February, the company, which trails only Harrah’s Entertainment Inc. among the world’s casino companies, said it will develop a second project with partner Pansy Ho in Macau, the only region in China where casinos are legal.

Last month, the company signed an agreement for a joint venture with Diaoyutai State Guesthouse in Beijing to develop luxury hotels and resorts in China.

MGM Mirage plans to spend $4.7 billion on its CityCenter development in Las Vegas, excluding land and preopening costs. The project, scheduled to open in November 2009, will include 2,700 private residences, two boutique hotels and a 4,000-room resort casino.

The company has pre-sold 90 percent of the Mandarin Oriental condominium units at CityCenter with more than $600 million in sales contracts.

Earlier this week, MGM withdrew a proposal to develop and manage 4,500 video lottery terminals at New York’s Aqueduct racetrack, the second time in four years it scrapped such a plan.

In addition to Las Vegas, MGM owns and runs casinos in Detroit, Mississippi and Illinois and co-owns the Borgata Hotel, Casino and Spa in Atlantic City, New Jersey, with Boyd Gaming Corp.