Gaming earnings mixed

David Strow

Wednesday, April 19, 2000 | 11:01 a.m.

International Game Technology reported a decline in first-quarter earnings today, but earnings per share still rose, thanks to heavy share buybacks over the past three months.

Meanwhile, Mirage Resorts Inc. made the most out of one of its last quarters as an independent company, setting all-time records for quarterly results and smashing through analyst expectations.

IGT reported net income of $24.8 million for the quarter ending April 1, a decline of 27 percent over the year-ago quarter. Even so, IGT's net income rose 1 cent per share, to 33 cents per share.

Since April 1, 1999, IGT has reduced its share count by 28 percent. Much of the cash for those share buybacks came from $1 billion in bonds issued by IGT last May, and interest on those bonds increased IGT's expenses by $13 million during the quarter. IGT also said net income was reduced by a $1.4 million loss taken from the sale of a gaming systems business unit in Australia.

"They've made a decision to alter their capital structure," said David Anders, gaming analyst at Merrill Lynch. "That lowers net income, but it also lowers the share count. This is pretty much an in-line quarter."

Although revenues declined 1.3 percent for the quarter, to $218 million, IGT's operating income rose 4.4 percent to $54.2 million, while cash flow increased 4.4 percent to $65.9 million.

Revenues were driven down by a 15 percent decline in product sales, to $118.7 million. The problem, IGT said, was that year-ago quarter included the openings of such resorts as Mandalay Bay and the Venetian, and there were no comparable openings this year.

"That was expected because of postponements in new orders," Anders said. "(Casino operators) are waiting for IGT's new line-up, and the company had prepared investors for that."

But counterbalancing that was a 22 percent gain from "gaming operations," which refer to revenues from slots that are leased to casinos and produce recurring income. This category saw a 22 percent increase, to $99.4 million, driven by such products as the video version of "Wheel of Fortune." About 3,000 of these games have been installed so far, IGT said.

"What's important is what happens over the next two quarters, given the significant product introductions that are occurring," Anders said. "That's really what's going to drive the stock."

IGT fell 19 cents this morning, trading at $23.44.

Mirage Resorts, meanwhile, beat analyst expectations by 27 percent for the quarter, as it finally turned around the struggling Beau Rivage hotel-casino in Biloxi, Miss.

Mirage Resorts reported net income of $55.8 million, or 28 cents per share, an all-time record. Net income rose 16 percent over the year-ago period, but was flat on a per-share basis.

Analysts had predicted earnings of 22 cents per share.

That makes MGM Grand's $6.7 billion buyout of Mirage Resorts look even better, said Robin Farley, gaming analyst with Deutsche Banc Alex. Brown.

"The stock that really benefits from that is MGM, because they're paying $21 per share for Mirage, and now they're getting even more cash flow than anyone bargained for."

Mirage Resorts edged up 19 cents to $20.13 by midday. But MGM Grand saw the larger gain, rising 94 cents to $27.88.

Mirage Resorts also set records for revenues and cash flow during the quarter. Revenues reached $737.9 million, up 14 cents, while cash flow increased 18 percent to $179.8 million.

One contributor to that increase was Biloxi's Beau Rivage, which had struggled during much of 1999. Over the first three months of 2000, Beau Rivage produced $87.5 million in revenues and cash flow of $17.4 million.

"The biggest unknown has been Mississippi," Farley said. "This is really a quarter where the property turned around. Any upside benefits MGM, especially at one of the properties where there's a fair amount of concern."

Big quarters were also posted at the Mirage hotel-casino and the Treasure Island, as both resorts reported their best quarters in three years. Revenues at the Mirage rose 9 percent to $191.7 million, while cash flow rose 13 percent to $56 million. At the Treasure Island, revenues rose 8 percent to $104.9 million, while cash flow climbed 18 percent to $28.6 million.

At the Bellagio, cash flow was $64.6 million, off $400,000 from the year-ago quarter. A lower-than-normal win from table games reduced Bellagio casino revenues by $21.4 million, but this was partly offset by a $17.4 million increase in non-casino revenues.

Also reporting earnings today was Harrah's Entertainment Corp. Harrah's earned $30.7 million, or 25 cents per share -- a 5 cent-per-share decline over the year-ago quarter.

The drop in earnings didn't surprise anyone, however, since Harrah's issued warnings last week that earnings would be below analyst expectations. It blamed a lower-than-normal hold percentage at the Rio hotel-casino, which it said reduced earnings by 9 cents per share and revenues by about $18 million. The Rio reported cash flow of $7.1 million during the quarter, a 76.3 percent plunge. The hotel-casino reported an operating loss of $1.3 million.

Continued losses at Harrah's New Orleans and from the company's ownership in National Airlines reduced earnings by another 11 cents per share.

"We're continuing to work diligently to develop a plan that can provide for the long-term financial success of Harrah's New Orleans," said Phil Satre, chairman and chief executive of Harrah's.

Still, there were some bright spots for Harrah's. Revenues rose 10 percent to a record $783.6 million. Cash flow increased 8.4 percent to $196.2 million.

And, most important to Harrah's officials, same-store gaming revenues increased 12 percent for the quarter.

In midday trading, Harrah's rose $1 to $22.

On Tuesday afternoon, Boyd Gaming Corp. joined the list of gaming companies beating analyst expectations, exceeding the Street's quarterly earning estimates by 22 percent with an all-time record quarter. But the Stardust on the Strip continued to struggle.

Boyd reported net income of $57.1 million, or 92 cents per share, for the quarter ending March 31, 2000. In the year-ago quarter, Boyd earned $8.9 million, or 14 cents per diluted share. Revenues rose 41 percent to $352.7 million, while cash flow rose 16.5 percent to $63.7 million.

A huge chunk of that profit was the result of a $71 million fee Boyd received after the termination of its contract to manage the Silver Star casino in Philadelphia, Miss.

But even after factoring out that profit, Boyd earned 22 cents per share, a 22 percent increase over the year-ago quarter.

Most of Boyd's improved earnings were the result of Blue Chip Casino of Michigan City, Ind., purchased in November for $255 million. In the first three months of 2000, the property produced $47.8 million in revenues and $20.8 million in cash flow -- more than any other Boyd property.

Equally impressive was the performance of Boyd's Par-A-Dice casino in Illinois, where more liberal boarding rules for the state's dockside casinos helped boost cash flow to $12.2 million, a 41 percent rise. Cash flow at Sam's Town on the Boulder Strip rose 10 percent, to $8.7 million, while cash flow at Boyd's three downtown Las Vegas casinos -- the California, the Fremont and Main Street Station -- rose 10 percent to $10.1 million.

Those gains made up for lost revenues from Boyd's contract at the Silver Star, as well as struggles at three other company properties.

Cash flow fell 23 percent to $4.8 million at the Stardust, though company officials expressed confidence the property will reverse that trend -- particularly through the draw of famed entertainer Wayne Newton.

"The signs at the Stardust are good," said Don Snyder, president of Boyd. "It's still too early to make long-term judgments about how that (the Wayne Newton deal) will be reflected in the casino, but we feel very good about the early indications."

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