Thursday, Feb. 1, 2001 | 11:04 a.m.
Casino giant MGM MIRAGE of Las Vegas today reported record earnings for the quarter ending Dec. 31, results spurred by its buyout of Mirage Resorts Inc. and strong performances at several of its Strip properties.
MGM MIRAGE reported earnings per share of 42 cents, up 24 percent from the year-ago quarter, while net income before preopening expenses rose 66 percent to $69.2 million. Analysts had expected earnings of 40 cents per share.
MGM MIRAGE shares increased $2.35 to $31.50 by mid-day today.
The company's strongest gains came in cash flow, which rose 150 percent to $316.9 million, and net revenue, which increased 155 percent to $1.1 billion.
Much of these gains were caused by the addition of the Mirage Resorts portfolio, acquired for $6.4 billion at the end of May. Had MGM MIRAGE owned these properties in the fourth quarter of 1999, net revenue would have risen 2 percent, while cash flow would be up 10 percent.
The largest improvements were reported at the Mirage and the Beau Rivage in Biloxi, Miss. Beau Rivage cash flow rose 150 percent to $11.5 million, the result of significant expense reduction measures.
"Beau Rivage's costs are down dramatically, and we continue to improve the efficiency of that company," said Bobby Baldwin, chief executive of Mirage Resorts.
Meanwhile, the Mirage's cash flow shot up 58 percent to $41.3 million, an increase the company attributed to increases in both casino and non-casino income. Room occupancy rose 2 percentage points to 95.6 percent, room rates were up 4 percent, and the combination of Danny Gans and Siegfried & Roy boosted entertainment revenues by $9.2 million. Baldwin said the Mirage's performance should receive another boost starting in April when the company completes a new 90,000-square-foot exhibit hall.
Cash flow growth was also reported at the Bellagio, MGM Grand Las Vegas, Treasure Island and New York-New York. The Bellagio's cash flow increased 1 percent to $88.1 million, as strengthening room demand offset a dip in the resort's gaming revenues and hold percentage. MGM Grand Las Vegas reported a cash flow increase of 7 percent to $54 million, as table game and slot volume, as well as room revenues, reached all-time highs. The company attributed much of the improved performance to strong convention business.
Across the street, the New York-New York posted cash flow of $22.6 million, up 5 percent from the year-ago quarter. Occupancy at the hotel-casino rose from 87.2 percent to 94.2 percent, driving a 7 percent increase in non-casino revenue, while casino revenues increased 3 percent. The Treasure Island, meanwhile, posted a "small increase" in cash flow to $26.8 million. Casino revenues fell at the resort because of lower table game play and hold percentage, but this was offset by a 10 percent increase in room rates and an increase in entertainment revenue.
Results at the company's non-Strip properties were mixed. The Golden Nugget in downtown Las Vegas saw cash flow decline 12 percent to $8.1 million, which the company blamed on lower table game hold. At the Golden Nugget in Laughlin, cash flow dropped 43 percent to $800,000. And at the company's three Primm properties, cash flow was off 11 percent to $14.6 million -- results the company blamed on California Indian casino competition and higher gasoline prices.
But company officials emphasized that they don't expect these issues -- together with California's growing electricity crisis -- to impact their higher-end Strip properties.
"Frankly, we're dealing with individuals of higher net worth," said Chairman Terry Lanni. "They won't be affected as much as individuals of lower net worth (by the energy crisis)."
Perhaps the most surprising performance of the quarter was turned in by MGM Grand Detroit, which faced two new competitors this year and a harsh winter that has damaged other casino companies' performances. Despite these factors -- which caused a 7 percent decline in net revenues -- the Detroit casino posted a 2 percent gain in cash flow, to $34.1 million.
The report came against the backdrop of an announcement several weeks ago by MGM MIRAGE that it would stop capitalizing interest on its 55-acre land parcel in Las Vegas. This accounting change will shift an additional $50 million to $60 million in annual interest expenses onto MGM MIRAGE's balance sheet, reducing earnings per share by as much as 25 cents a year starting in 2001.
That has some analysts calling the Mirage Resorts buyout dilutive -- and prompted one analyst to ask Murren if the company would make the huge purchase all over again.
"The answer is a big fat 'yes,"' Murren replied. "Had we never capitalized the interest ... the Mirage acquisition was (still) accretive in Q3, and even more so in Q4. It's only going to get better from an accretion standpoint."
"We bought the best company in the gaming industry, and that doesn't even account for the enterprise land value we acquired with the acquisition, or the intellectual value of the employees. We'd all say here that we'd do that deal 10 times over."
Murren said the company has now achieved $117 million in annual cost savings, with a target of $140 million to $150 million. About $241 million in assets "that didn't generate a penny" have been sold to date, Murren said, and the company's debt has been reduced by $570 million since May.
The company also made it clear it remains interested in expanding into the Chicago area. That option could now be available to the company, as Horseshoe Gaming must sell its Empress casino in Joliet this year as a result of a settlement with Illinois gaming regulators.
"We think the Chicago market is very strong," Lanni said. "That area surrounding Chicago affects some interesting opportunities, and it's one that we follow very closely." Lanni made no specific mention of the Joliet property.
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