Mirage earnings report drags down stocks

Gary Thompson

Tuesday, Jan. 25, 2000 | 11:13 a.m.

Stock hits

Shares of four big Las Vegas casino operators continued to fall this morning, though Park Place Entertainment bucked the trend.

Mirage Resorts was off 31 cents this morning, Harrah's Entertainment was down 88 cents, MGM Grand was down 75 cents and Mandalay Resort Group was off 13 cents.

But Park Place, the largest casino company in the nation, saw its shares rise 6 cents this morning.

Gaming stocks got battered by a double-barreled dose of bad news Monday.

Fears of interest-rate increases pushed the overall market lower, with the Dow Jones industrial average off nearly 2.2 percent. Meanwhile, investors expecting higher earnings from Mirage Resorts Inc. sold off casino stocks across the board.

Mirage Resorts led the group lower, dropping $2.75 a share or 17.3 percent to close at $13.125 on heavy volume.

Park Place Entertainment shares fell 8.2 percent, Harrah's Entertainment was off 6.8 percent, MGM Grand closed down 4.9 percent and Mandalay Resort Group was 1.9 percent lower. Station Casinos and Boyd Gaming also fell, losing 1.6 percent and 5.3 percent respectively.

Gaming-equipment makers didn't fare much better, with WMS Industries plunging 27.3 percent despite reporting fourth-quarter operating earnings of $8.2 million compared with a year-earlier loss. International Game Technology, which posted earnings last week, fell 4.3 percent.

But Alliance Gaming bucked the trend, jumping 25.7 percent to close at $2.75, up 56.25 cents a share.

BancBoston Robertson Stephens gaming analyst Harry Curtis cut his rating on Mirage Resorts shares to "long-term attractive" from "buy," saying the company's cash flow from older resorts was "disappointing" even though per-share net came in slightly above Wall Street's expectations.

But in a conference call with analysts and investors Monday, Mirage Resorts Chairman Steve Wynn and Chief Financial Officer Bobby Baldwin said Mirage's struggling Beau Rivage in Biloxi, Miss., has turned the corner and Bellagio, its high-end Strip resort, needs another 1,300 hotel rooms to meet demand.

"We're just finishing our first practice lap in Mississippi, where we've learned about seasonal fluctuations" in business, Wynn said. He said the share seasonal drop in customer counts during November, December and early January was exacerbated by competition from the opening of Harrah's Jazz casino in nearby New Orleans.

"The lessons we've learned are startling," he said. "We've made tremendous changes in Mississippi as a result of that information ... and expect better news in the first quarter this year."

He and Baldwin said they expect Beau Rivage's operating cash flow, which hit just $4.6 million in the fourth quarter, will reach $70 million this year.

Wynn also urged investors to consider Mirage Resorts' top Las Vegas properties -- Bellagio and the Mirage -- as a single 6,000-room hotel-casino.

"We treat it as one big $2.4 billion hotel ... that made $400 million of cash flow last year in the face of three or four of the most fanciful (casino) developments in the history of Las Vegas," he said, referring to the openings of Paris Las Vegas, Mandalay Bay, the Venetian and the Mansion at MGM Grand.

Baldwin said Bellagio's cash flow totaled $260 million in 1999 and could hit $275 million this year. Before Bellagio opened in October 1998, the mean projection of 12 gaming analysts pegged its 1999 cash flow at $309 million.

Mirage Resorts' $136 million of cash flow last year came despite a hold percentage of just 18 percent, two points below the normal 20 percent, he said. Fourth-quarter hold percentage at Mirage Resorts was 16 percent.

"Park Place spent $3 billion to buy Caesars World with about $360 million of cash flow," Wynn said. "I'm sure Park Place will do a good job managing that investment.

"But compare that with three of our hotels -- Treasure Island, which cost $500 million, and the $2.4 billion for Bellagio and Park Place. Those three threw off $490 million of cash flow last year."

Wynn said the decision to add a 1,300-room hotel tower and convention space at Bellagio was driven by the resort's "enormous popularity." He said there'd be no loss of business during construction of the $250 million addition, which he estimated will add $54 million of cash flow in its first year.

"We know we can fill those rooms," he said. "The worst case is $54 million, and it could be much better."

Wynn said he expects to disclose plans to develop the Boardwalk property just south of Bellagio later in the first quarter, but doesn't expect any new resort there to open before the first half of 2004.

"We've concluded a preliminary agreement of intent" with producers of an entertainment concept that would provide a theme for the new property, "but I have more documentation to complete before I start blabbing," he said.

Wynn also said Mirage Resorts' plans to build an Atlantic City casino "got off to a very difficult start."

"We didn't know where we stood because we had over a dozen lawsuits filed by Donald Trump and his agents. Those lawsuits took a number of years and millions and millions of dollars to resolve ... and there's still one pending," he said.

"Now we're engaged in normal design development ... and we're preparing bid documents," Wynn said, adding that the Atlantic City resort -- dubbed Le Jardin -- should open in the first half of 2003.