Majestic Research

Reuters

Station Casinos Profit Tops View, Outlook Mixed

By Paritosh Bansal and Deena Beasley
Published: May 04, 2006

NEW YORK/LOS ANGELES, May 4 (Reuters) - Station Casinos Inc. on Thursday posted better-than-expected quarterly profit, helped by stronger business at its Las Vegas properties that cater to residents, but lowered its 2007 earnings per share forecast due to higher interest costs.

Station also raised the lower end of its 2006 outlook, but left the top end unchanged.

“For a company viewed as one with high growth prospects, you don’t like to see guidance come down,” said Matthew Jacob, an analyst at Majestic Research.

Chief Financial Officer Glenn Christenson said the higher interest expense is due to the recent repurchase of shares. “Our operational guidance has not changed at all,” he said.

Shares of Station were down by about 1 percent in midday trading on the New York Stock Exchange.

Net income for the first quarter increased about 1 percent to $41.1 million, or 62 cents per share, from $40.6 million, or 59 cents per share, a year earlier.

The company said results were hurt by parking garage construction at several properties.  “By the end of the third quarter, we should start seeing the benefit of better parking,” Lorenzo Fertitta, vice chairman and president, said on a conference call.

The company last month opened its $925 million Red Rock Casino, Resort and Spa in the Las Vegas suburb of Summerlin.

Excluding one-time items and development expense, Station reported a profit of 78 cents a share, topping the average analyst estimate of 69 cents a share, as compiled by Reuters Estimates.

Station’s casinos are scattered away from the Las Vegas Strip and are aimed more at local residents than tourists.  The company also manages tribal casinos.

Growth has paralleled that of Las Vegas, one of the fastest-growing cities in the United States. But new casino projects by Station and its competitors have raised questions about whether local gambling demand can absorb the additional capacity.

“There have been concerns in general that growth in the Las Vegas locals market is slowing,” Majestic’s Jacob said.

Station Casino’s first-quarter net revenue rose 7 percent to $292.5 million, while net revenue at its major Las Vegas operations rose 8 percent.

“The Las Vegas locals market was pretty strong,” said Brian McGill, an analyst at Susquehanna Financial Group.

Station said for the second quarter it expects earnings per share of 60 cents to 65 cents, excluding development expense and other nonrecurring items.  Analysts expected a second-quarter profit of 65 cents a share.

For the third quarter, the company forecast earnings per share of 53 cents to 59 cents, and for the fourth quarter forecast earnings per share of 66 cents to 71 cents.

For the full year, it expects to post adjusted earnings per share of $2.57 to $2.71, compared with its previous forecast of $2.53 to $2.71.

Station estimated 2006 earnings before interest, tax, depreciation and amortization at $550 million to $565 million, compared with analysts’ $554 million.

The top end of EBITDA guidance was not changed, even though the company beat the consensus estimate by $6 million in the first quarter, Jacob said.

For 2007, Station forecast earnings per share of $2.65 to $3.05, down from its earlier outlook of $2.77 to $3.13.

Station’s shares were $1.04 at $75.61 near midday on the New York Stock Exchange.  So far this year, the stock is up about 11 percent, compared with a 23-percent gain for the Dow Jones U.S. hotels index