Station Casinos profit improves despite slowdown

David Strow

Tuesday, Oct. 24, 2000 | 10:54 a.m.

Station Casinos Inc. of Las Vegas today reported strong gains in earnings for the quarter ending Sept. 30, though growth in the critical Las Vegas market slowed over the last three months.

The Las Vegas locals casino giant reported net income of $18.8 million, or 30 cents per share, before one-time charges. That represents a 43 percent increase over the year-ago quarter, and beat analyst expectations by 1 cent per share.

After accounting for one-time charges of $5.5 million, Station earned $15.6 million, or 25 cents per share -- an 18 percent increase in net earnings and 25 percent on a per-share basis.

Cash flow for the quarter was $68.6 million, up 11 percent over the year-ago period, while revenues increased 5 percent to $249.1 million.

Though the numbers showed solid growth, earnings growth was slowed by fresh competition in the Las Vegas market, Station officials said. During the quarter, net revenues in Nevada rose 4 percent, to $151.9 million, while cash flow increased 3 percent to $49 million. The company said the slowdown in Las Vegas has been expected for some time.

Frank Fertitta III, chairman and chief executive, said part of the reason was the impact of Coast Resorts Inc.'s Suncoast hotel-casino, opened in mid-September near Summerlin.

"When a new property opens in the locals market, there's initially a surge of locals wanting to see these properties, and it does have an impact early on," Fertitta said. "There was definitely an impact on Texas Station and Palace Station. We will continue to see some impact in the near term, but in the next quarter or two, we'll be back to where we were, and the market will have absorbed that new capacity."

Glenn Christenson, Station's chief financial officer, said Station may also feel some impact when Boyd Gaming Corp. soon completes its renovation of Sam's Town.

A second factor slowing growth in Las Vegas was road construction at the intersection of I-15 and Sahara Avenue, the site of Palace Station. That construction should continue through the middle of next year.

"Next summer, when construction is finished there, that will be a benefit to us," Christenson said. "We're enduring short-term pain for longer-term gain."

Earnings were also impacted by a $2.6 million increase in interest expenses and $2.5 million in regulatory costs -- $475,000 in a fine levied by the Nevada Gaming Control Board over the Lance Malone anonymous flier, and the remainder in costs associated with on-going investigations in Missouri over the activities of former Station outside attorney Michael Lazaroff.

Still, Christenson said Station remains optimistic about long-term growth opportunities in Las Vegas. In a rapid expansion of its Las Vegas portfolio, Station has purchased the Santa Fe, and plans to buy the Fiesta in North Las Vegas and the Reserve in Henderson.

"The Las Vegas locals market has the best dynamics of any market in the country," Christenson said.

By comparison, Station's two Missouri properties -- which the company hopes to sell to Ameristar Casinos Inc. early next year for $475 million -- showed substantial growth. Net revenues rose 6 percent to $85.2 million, while cash flow shot up 30 percent to $24.2 million. Station attributed these gains primarily to efficiencies from combining its two St. Louis buildings onto a single barge.

Company officials also said costs for two major projects have been raised. The Texas Station expansion, once valued at $55 million, has now been increased to $72 million, primarily because Station is revamping its original casino space to match the look of the new space.

At the company's Green Valley Ranch project, a joint venture between Station and American Nevada Corp., costs have escalated from $270 million to $300 million, Station said.

The additional costs come primarily from the addition of more slots, floor space and parking spots to the project, which is set to be complete by December 2001.

Both Station and American Nevada plan to contribute $50 million in equity to the project now, up from $40 million. American Nevada is owned by the Greenspun family, owner of the Las Vegas Sun.

Station is also contemplating other potential casino projects in the Las Vegas area, including a proposed hotel-casino on Craig Road in North Las Vegas.

Station stock was down 13 cents in midday trading today to $16.25.