MGM earnings hit record

David Strow

Thursday, July 15, 1999 | 10:56 a.m.

MGM Grand Inc. beat analyst earnings estimates by 30 percent in the second quarter, largely because of a record performance at its flagship Strip hotel.

The company today reported record earnings of $24.1 million or 52 cents per share, up from the year-earlier quarter's $14.4 million or 25 cents per share. Analysts had projected 40 cents per share. Revenues reached an all-time high of $319.1 million, while cash flow reached $97.9 million, doubling last year's figure.

"Our emphasis on maximizing returns has manifested itself through escalating free cash flow," Alex Yemenidjian, president of MGM Grand, said. "Our industry leading balance sheet affords us the opportunity to grow internally, reduce debt and repurchase shares. Our highly anticipated Detroit casino will be ready to receive customers shortly and should significantly enhance MGM Grand's profitability."

Cash flow, a common indicator of profitability in the gaming industry, measures earnings before interest, taxes, depreciation and amortization.

The 5,005-room MGM Grand was effectively sold out during the entire quarter, MGM said, with an average room rate of $100 per night. That boosted slot volume at the resort by 11 percent. Table game volume -- excluding baccarat -- rose 12 percent. Casino revenues rose 18 percent overall, driven by higher play and "more normalized hold percentages."

The MGM Grand hotel-casino recorded cash flow of $47.4 million, up 31 percent from last year, and revenues of $191.5 million, up 13.9 percent.

Across the street, the New York-New York recorded cash flow of $25.3 million and revenues of $54.7 million. The hotel reported a 99.3 percent occupancy rate for the second quarter, up from 96.9 percent last year.

MGM's three properties in Primm recorded cash flow of $19.8 million, up 25 percent. MGM acquired the 50 percent New York-New York it did not already own and the Primm properties as part of its March acquisition of Primadonna Resorts Inc.

"They've been able to integrate the Primadonna acquisition better than any single acquisition I've ever seen," said Andrew Zarnett, a gaming analyst with Ladenburg Thalmann in New York.

MGM's Australia property recorded cash flow of $3.2 million, while its South Africa property reported $2.2 million in cash flow.

Meanwhile, Station Casinos Inc. announced earnings of $21.6 million or 50 cents per share, up from $1.5 million or 4 cents in the year-ago quarter. Before a one-time gain of $8.8 million from settlement of a lawsuit, Station earned $12.8 million or 30 cents per share.

The company recorded cash flow of $61.6 million, up 26 percent from a year before, while revenues rose 14 percent to $235.4 million. It was Station's eighth consecutive quarter of record cash flow.

The company attributed its strong earnings to record performances at all of its Nevada properties, as well as a record quarter at its Kansas City casino.

"Our Nevada properties continue to capture more than their fair share of the growth in the market with the furtherance of our brand approach and recently completed expansion projects at Texas Station and Sunset Station," Glenn Christenson, executive vice president and chief financial officer, said.

Station's four Las Vegas casinos -- Palace, Boulder, Texas and Sunset -- reported cash flow of $49.1 million, up 23 percent from last year. Revenues increased 12 percent, to $147.3 million. Station said each of the four casinos reported record gaming revenues. Overall, gaming revenues in Nevada rose 15 percent.

However, the four casinos saw their occupancy rate fall from 96 percent to 94 percent in the quarter.

At its two Missouri casinos, cash flow soared 47 percent to $17.2 million, while revenues rose 11 percent. Station reported a 79 percent occupancy rate in Missouri, down from 82 percent a year prior.

Today's earnings reports were issued against the backdrop of Mirage Resorts warning it won't meet earnings estimates because of increased competition on the Strip and other factors.

Zarnett said MGM Grand is profiting from its middle-market niche.

"The middle market is flocking to Las Vegas to see these new structures," Zarnett said. "When they're there, they're spending a lot more on rooms, in table/slot play and retail."

"In the high market, the whales, there's much more competition. Instead of three, you now have six. I do not believe that market is growing fast enough to absorb that new supply."

In June, the MGM entered the high-end market for the first time with the opening of its 29-villa Mansion. That property should help the MGM siphon off some of the high-end market along the Strip, Zarnett said.