Majestic Research

Reuters

MGM Mirage Profit Disappoints, Project Budgets Up

By Chris Reiter and Lisa Baertlein
Published: October 30, 2007

Casino operator MGM Mirage Inc posted lower-than-expected quarterly profit on Tuesday as Las Vegas gamblers won more than usual and the company lost share among the wealthiest Asian high rollers.

The world’s second-largest casino operator after Harrah’s Entertainment Inc also increased the budgets for two high-profile projects, and its shares slipped over 1 percent.

MGM, which operates the Bellagio, Mandalay Bay and Circus Circus in Las Vegas, said third-quarter net income rose 18 percent to $183.9 million, or 62 cents per share, from $156.3 million, or 54 cents per share, a year earlier.

MGM, which is also undertaking significant renovations at other Vegas properties including the Luxor, said earnings had benefited from $135 million in insurance recoveries for damage sustained during Hurricane Katrina.

Excluding the insurance gain and other one-time items, the company posted profit of 42 cents per share, below analysts’ average forecast of 50 cents, Reuters Estimates said.

“A lot of the weakness out of Vegas, and the down surprise for us, was out of Bellagio,” said Majestic Research analyst Matt Jacob.

Results from baccarat, which attracts the highest-stakes gamblers, declined as the swanky Bellagio renovated its baccarat room. It is slated to reopen in mid-December, around the time the company also aims to open a casino in Macau, China’s gambling haven.

“We continue to believe our high-end results will improve when we open MGM Grand Macau later this calendar year,” MGM Chief Executive Terry Lanni said on a conference call.

Operating earnings at MGM’s Las Vegas Strip properties fell 6 percent to $334 million, as profits from sales of condominiums at the Signature at MGM Grand declined from the year earlier. The company said it bought the remaining 88 condominiums at the Signature at MGM Grand during the quarter to house its many consultants and other business partners.

Revenue rose 6 percent to $1.9 billion, boosted by the Beau Rivage, which was open only 33 days in the 2006 third quarter. Excluding that U.S. Gulf Coast casino, MGM said revenue rose 2 percent.

Gaming revenue at MGM, which owns and operates 17 casinos, rose 3 percent, but it fell 3 percent excluding Beau Rivage.

Analysts said MGM’s mass-market business appeared to hold up as a deflating domestic housing market fueled consumer spending jitters.

“They’re saying (Vegas) casino revenues were flat. I don’t think it was negative; it just wasn’t as positive as we were all expecting,” said Jefferies & Co. analyst Larry Klatzkin.

MGM is developing a number of casinos, including the massive CityCenter project in Las Vegas and a $5 billion casino in Atlantic City, New Jersey. Earlier this month, it opened the MGM Grand Detroit, and it plans to debut its first property in Macau, China’s gambling haven, by the end of the year.

But some of these new projects are costing more than expected. MGM increased its project budget for the MGM Grand Macau to $1.25 billion from $1.1 billion, while the expected costs for CityCenter rose to $7.8 billion from $7.4 billion.

In August, MGM agreed to sell half of the CityCenter development of hotels, condos and retail outlets to state-owned investment firm Dubai World. That deal is slated to close in the current quarter.

MGM President Jim Murren said the deal also “evaporates” risks for shareholders since Dubai World carries a higher credit rating and it moves the balance of the CityCenter construction off MGM’s balance sheet.

Earlier this month, Dubai World bought 14.2 million shares of MGM stock directly from the company for about $1.2 billion, taking its stake up to nearly 5 percent.

Lanni said the company and Dubai World are exploring other partnerships, including developing a non-casino project in Singapore.

MGM shares were down $1.06 at $91.86 in late trade on the New York Stock Exchange.