Thursday, April 30, 1998 | 4:26 a.m.
SUN STAFF REPORT
MGM Grand Inc., operator of the largest hotel-casino on the Las Vegas Strip, today predicted tougher gaming industry competition as it announced a first quarter profit of $16.3 million.
That's down substantially from the $30.2 million MGM Grand earned in the same quarter last year.
But posting higher revenues today were Alliance Gaming and the Hard Rock Hotel.
The profit decline at the MGM -- from 51 cents per share to 28 cents -- was anticipated. Revenue of $179.8 million was down from $197.5 million.
MGM cited an unusually low table games win during the quarter.
"First quarter results obscure the material improvements at the MGM Grand Las Vegas as we transform the property into The City of Entertainment," said Chairman and Chief Executive J. Terrance Lanni.
Improvements include a nightclub, convention center, new pool and spa facilities, a redesigned buffet and a Tuscan-style mansion that will be a separate 29-suite hotel and casino.
MGM said revenue fell from $175 million to $161.4 million at the 5,005-room MGM Grand on the Las Vegas Strip and also fell slightly to $7.5 million at MGM Grand Australia. Its new South Africa operation posted revenue of $672,000 in the quarter.
Earnings before interest, taxes, depreciation and amortization (EBITDA) from the MGM Grand fell from $53 million to $34 million, but increased from $981,000 to $2.6 million in Australia. MGM's share of pretax income from its 50-percent owned New York New York hotel casino fell from $12.3 million to $8 million as business declined there to more normal levels after its spectacular 1997 opening. The South Africa operation contributed $282,000 in EBITDA.
MGM Grand said it's on track to build a hotel-casino in Detroit and continues to plan for one in Atlantic City.
In a conference call this morning, MGM executives said improvements to the MGM Grand will improve the resort's financial performance.
"We are planting the seeds in 1998, and we are going to begin to harvest in 1999 and going forward," said Alex Yemenidjian, MGM's president and chief operating officer.
Lanni said MGM expects the equivalent of "World War III," to begin later this year as other high-end Las Vegas resorts open, increasing room capacity in the city. But he said that MGM's product quality and strong balance sheet would allow it to whether the storm and come out one of the winners.
"The company that comes out of the other end of this tough two-year period with the cleanest, strongest balance sheet will have the most opportunities available to it," Yemenidjian said.
The competitive war to come may even create buying opportunities for MGM, he said.
"If in fact things get worse before they get better, we will be in a position to take advantage of those opportunities," Yemenidjian said.
However, Yemenidjian noted MGM's primary strategy is to grow though building new casinos. What's the point of buying a casino for eight to ten times cash flow when MGM can create its own new casino from scratch for four to five times cash flow, he wondered.
Yemenidjian also conceded that a shortage of air service to Las Vegas was an "impediment," but predicted that would change, "as people become more prepared to pay higher prices to come to Las Vegas."
MGM is posting much of its hope for the future on increasing the number of business travelers it serves. And key to that, the executives said, is the new convention center. For the remainder of 1998, the MGM Grand has booked $26 million in convention center-related business, figured as EBITDA revenues, of which $15 million is business that would not have been booked without the new facility.
Separately, the also-expanding Hard Rock Hotel Inc. reported first-quarter revenue increased 6.1 percent to $19.5 million, EBITDA of $4.4 million was up from $3.7 million; though net income fell from $700,000 to $300,000 due to higher interest costs.
And Alliance Gaming Corp. reported a quarterly loss of $1.1 million or 3 cents per share, an improvement from the $2.4 million or 8 cents lost in the comparable 1997 quarter.
Revenue increased 1 percent to $102.2 million. Slot route and casino results were up while sales fell at Alliance's Bally slot machine manufacturing unit.
"While EBITDA results for Wall Machine and Amusement Games, Route Operations and Casino Operations showed improvement, Bally Gaming and Systems experienced a slowdown in unit shipments as customers waited for regulatory approval of new products," said Chief Executive Morry Goldstein.
"With our updated Pro-Series and GameMaker product lines receiving Nevada approval in March and with Feature Frenzy and Roll the Dice receiving Nevada approval in April, we have seen a pick-up in orders in the June quarter. With the impending commencement of the field trial of our Thrillions progressive jackpot system and the filing of GameMagic with the regulators, we continue to remain on track with our plan to commercialize new products."
archive
