MGM MIRAGE results reflect Vegas economic rebound

David Strow

Thursday, Jan. 31, 2002 | 11:01 a.m.

MGM MIRAGE today reported a big decline in earnings for the last quarter of 2001 -- but still came in well ahead of Wall Street's expectations for a quarter in the shadow of Sept. 11.

The Las Vegas-based casino giant reported net income, prior to one-time charges, of $27.9 million, or 18 cents per share, for its fourth quarter ending Dec. 31. This was a decline of 60 percent from the year-ago period. Including one-time charges, the company's net income was $23.7 million, or 15 cents per share, down 65 percent.

However, analysts had expected far worse -- the consensus estimate for MGM MIRAGE was 9 cents per share. MGM MIRAGE apparently beat forecasts because of its cost-cutting campaign, which saw the casino giant shed more than 6,000 jobs at its peak. Payroll was the biggest element of the cost-reduction campaign; MGM MIRAGE officials told investors today they reduced their payroll costs by 10 percent during the quarter.

Though MGM MIRAGE has hired back more than 2,000 people since then, company officials repeatedly said today that they intend to run a tighter ship in the future.

"We expect to maintain that lower cost structure going ahead," MGM MIRAGE Chairman and Chief Executive Terry Lanni said.

MGM MIRAGE officials also made it clear that they see Las Vegas business coming back, noting that hotel and casino business "steadily improved throughout the fourth quarter."

"It now seems clear that no city in the United States has rebounded as quickly and profoundly as Las Vegas," said Jim Murren, MGM MIRAGE president and chief financial officer.

On a conference call with investors, Murren said he was "comfortable" with analyst expectations that MGM MIRAGE would earn 24 cents per share in the quarter ending March 31.

"We expect consistent improvement throughout the year on a quarterly basis," Murren said.

The MGM MIRAGE earnings and bullish tone of the company cheered many analysts.

"These results emphatically affirm our believe that Las Vegas is recovering, and that (MGM MIRAGE) has attacked costs aggressively and will likely be a prime beneficiary (of a recovery)," wrote Joyce Minor, gaming analyst for Lehman Bros., in a research note this morning.

"As trends continue to improve in Las Vegas throughout 2002, we believe the company has put enormous operating leverage in its business model as revenues ramp up," wrote Jason Ader, gaming analyst with Bear Stearns.

MGM MIRAGE stock rose 81 cents to $32.33 by early afternoon today.

MGM MIRAGE's results were down across the board. Revenues were down 13 percent to $896.3 million, while cash flow fell 28 percent to $228.2 million.

The company's Strip properties, not surprisingly, fared badly during the quarter. New York-New York posted the "best" results of the quarter -- its cash flow of $17.3 million was down 24 percent from the year-ago period.

Bellagio reported $56.2 million in cash flow, down 36 percent; MGM Grand Las Vegas $35.4 million, down 35 percent; the Mirage $26.2 million, down 36 percent; Treasure Island $17.1 million, down 36 percent; and Monte Carlo (a 50-50 joint venture with Mandalay Resort Group) $15.1 million in cash flow, down 37 percent.

Off-Strip results were markedly better, with only one exception -- the Beau Rivage in Biloxi, Miss., which reported $7.8 million in cash flow, down 32 percent.

MGM Grand Detroit was the star of the quarter for the company, reporting cash flow of $40.4 million, up 18 percent. The Golden Nugget in downtown Las Vegas was off only 6 percent at $7.6 million, while the Golden Nugget Laughlin was a surprise by posting $704,000 in cash flow, up 11 percent.

Despite the significant downturn, MGM MIRAGE emphasized optimism in its earnings announcement. International high-end business fell 75 percent after Sept. 11, but about two-thirds of this loss has been recovered, Lanni said. Domestic high-end business was down 50 percent initially, but is now off about 13 percent.

Lanni said bookings for two big upcoming Las Vegas weekends -- the Super Bowl and Chinese New Year's -- looked good. Super Bowl bookings are running even with last year, Lanni said, while Chinese New Year bookings "look very strong, but we have to wait and see who shows up."

But the Olympics, set for next month in Salt Lake City, are expected to bring few benefits.

"Skiers don't make very good gamblers ... I found that out at Caesars Lake Tahoe," Lanni said. "I don't believe the Olympics bring any gamblers in, either summer or winter."

Company officials addressed a variety of issues on their conference call this morning:

--MGM MIRAGE officials said little about a pending deal to acquire Emerald Casino Inc. for $615 million. If successful, the deal would give MGM MIRAGE the ability to construct a casino near Chicago's O'Hare Airport, but the controversial agreement is pending before the Illinois Gaming Board.

"They'll make whatever decision they're going to make, and we'll abide by whatever that is," Lanni said. "We realize we don't control the process or the timing there. We're very much interested in it, but haven't made any assumptions as to when that project will take place, or even that it will take place."

--Bobby Baldwin, chief executive of Mirage Resorts Inc., announced MGM MIRAGE would begin rolling out a multiproperty players card on April 2 at the Mirage. Rivals Harrah's Entertainment Inc., Mandalay Resort Group and Park Place Entertainment Corp. have already introduced such programs on the Strip.

"We're excited about that," Baldwin said.

--Lanni shot down a published report that the short list of contenders for Macau licensees had been narrowed from nine to five. MGM MIRAGE is one of five Strip companies that is on the short list for three Macau gaming licenses.

Lanni said a decision is expected by Feb. 12. At that time three primary and three alternate bidders will be announced, Lanni said.

MGM MIRAGE is bidding with partners, Lanni said, and its equity stake is under 50 percent, but the company would have "significant management involvement" in a Macau casino.

"We believe ... we stand as good a chance as anyone else," Lanni said.

--Company officials did not address published reports that MGM MIRAGE was eyeing legendary singer Paul McCartney to perform at the MGM Grand Garden Arena on April 6 -- the previously scheduled date of the Lennox Lewis-Mike Tyson fight. The big-money match fell through Tuesday when the Nevada State Athletic Commission denied Tyson a license.

Prior to the conference call, an MGM MIRAGE official declined comment.

"We are holding a baccarat tournament (the weekend of Apr. 6), and there's always the possibility of concerts in the MGM Grand Garden," said MGM MIRAGE spokesman Alan Feldman. "Now that that date is free, certainly we'll take a look at the possibility of getting something ... but it's too early to discuss who it might be."