Gaming giant MGM MIRAGE to beat profit expectations

David Strow

Monday, Jan. 8, 2001 | 11:04 a.m.

Just days after Park Place Entertainment Corp. warned it would not meet fourth-quarter earnings estimates, gaming giant MGM MIRAGE today said it would beat analyst expectations by the quarter by as much as 5 cents per share.

Though some analysts saw the pre-announcement as positive news for Las Vegas in an uncertain environment, it had little impact on MGM MIRAGE stock -- this morning, the company traded at $28.63, up 13 cents. For a time, the stock was actually down for the day.

"We've been on a two-year roll of strong earnings," said Jim Murren, president and chief financial officer of MGM MIRAGE. "We have the highest quality portfolio of any gaming company, and that has historically proven successful in weathering economic slowdowns.

"We're not immune to a downturn, no more than any other company I can think of, but I think people have made several assumptions without any analytical (evidence) as to what will happen to Las Vegas during a downturn."

MGM MIRAGE said it expects to report fourth-quarter earnings between 40 and 44 cents per share, beating analyst expectations of 39 cents per share. The company will report earnings on Feb. 1.

The report comes in the face of growing concerns that the Las Vegas market is facing a serious slowdown, fueled by Park Place's warning last week that it would miss its earnings estimates by 13 cents per share. MGM MIRAGE has not proven immune to these concerns -- particularly because its portfolio is so heavily oriented to Las Vegas -- and its shares now trade more than 27 percent off their October high. A number of Wall Street analysts have downgraded MGM MIRAGE in the face of these concerns as well.

The company's local resorts include Bellagio, Mirage, Treasure Island, Golden Nugget, MGM Grand, New York-New York, half of the Monte Carlo and a three-casino complex in Primm.

The downgrades have annoyed MGM MIRAGE officials, who have repeatedly insisted they've yet to see any evidence of a slowdown hitting their properties.

"(The MGM MIRAGE announcement) is really a positive as an integral datapoint," said Brian Egger, gaming analyst with CS First Boston. "In a flowing economy, some degree of deceleration would be logical to see. But there's been somewhat of an exaggerated response to certain datapoints. Obviously the Las Vegas trends were the driver behind (MGM MIRAGE's) performance.

"There are some mixed signals coming from the Las Vegas market. But though we're looking for some deceleration this year, some of the more serious concerns have been exaggerated."

But Adam Steinberg, gaming analyst with CIBC World Markets, said the report doesn't change his concerns about Las Vegas going into 2001.

"Everyone knew Las Vegas was doing well in the fourth quarter," Steinberg said. "But there are a number of concerns still out there for Las Vegas going forward into 2001."

For example, Steinberg said, visitation from California could be heavily cut by a slowing economy, skyrocketing electricity bills, expensive gasoline and increased competition from Indian casinos.

"Secondary markets might get increased visitation in a recession as a substitute for people coming to Las Vegas," Steinberg said.

Trading in other Las Vegas gaming stocks was mixed this morning. Mandalay Resort Group traded at $20.44, up 25 cents, and Harrah's Entertainment Inc. rose 50 cents to $25.25. But Park Place fell 13 cents to $10.06.

Murren said the company's results were helped primarily by strong business trends in Las Vegas throughout the three months ending Dec. 31. The company's Detroit casino also performed well, he said, despite poor weather conditions and tougher competition, while Beau Rivage in Biloxi "is doing a little bit better than (the rest of) a tough market."

"We saw very strong room trends in October, November and December at all our room properties ... and gaming traffic was a little better than we thought it would be," Murren said.

These trends appear to be continuing into the first quarter of 2001, Murren said, driven by strong convention business.

"I think Las Vegas has fared better as a city than people had feared, and I think a lot of people are talking themselves into a recession that hasn't materialized, certainly not here, at least not yet," Murren said. "It is a year of uncertainty, and we're keeping our head down and doing the best we possibly can.

"It's clearly a slowing economy, but we think we'll continue to compete favorably against the market out here."