Boyd reports profit doubled in quarter

By Liz Benston (contact)

Thursday, July 18, 2002 | 11:10 a.m.

Las Vegas casino operator Boyd Gaming Corp. more than doubled its earnings per share for the second quarter compared to a year ago, becoming the second major gaming company to exceed Wall Street profit estimates for the quarter.

The company's results, announced Wednesday, were boosted by the May 2001 acquisition of the Delta Downs racetrack in Louisiana, a property that reported $6.7 million in cash flow for the quarter and that company executives say is poised to reap even greater returns in years to come thanks to the installation of slot machines there.

Boyd reported earnings, before one-time expenses, of 29 cents per share. The company didn't reveal actual dollar figure. That compares to earnings per share of 14 cents last year. Revenue jumped 11 percent during the period, from $281 million in the second quarter of 2001 to $312 million this year.

Wall Street had expected the company to earn 25 cents per share.

Analysts praised the company for its solid performance amid a challenging environment of rising gaming taxes and economic woes.

"Management has done a really good job across all of their properties," said David Barteld, a gaming analyst for Wells Fargo Van Kasper. "They have record cash flow and they manage their costs and expenses efficiently."

Barteld said he projects 23 percent earnings growth for the year, to $1 per share, increasing to $1.23 per share next year.

Bear, Stearns & Co. gaming analyst Jason Ader said he remains "impressed with the operational savvy of Boyd's property-level managers."

The company's Blue Chip and Par-A-Dice casinos "continue to post some of the highest (cash flow) margins in the industry, at 42.9 percent and 39.8 percent, respectively."

Also, Delta Downs has outperformed most other recently opened gambling venues after its first several months of operations, Ader wrote in a research note.

Cash flow margin is a key indicator of casino profitability.

After one-time charges, including $3.2 million primarily relating to the opening of the Borgata, earnings were 26 cents per share for the quarter. Earnings totaled $17 million, compared with 14 cents per share last year, or $8.4 million.

Debt reduction is a priority for the company, Chief Financial Officer Ellis Landau said. The company's debt was $1.1 billion at the end of the quarter, a reduction of $40 million from the first quarter. The company doesn't expect any other capital spending other than some maintenance and a final $25 million chunk next year on the Borgata, a luxury hotel-casino expected to open in Atlantic City in 2003. It also recently finalized a $500 bank loan, replacing one that was to mature next year and pushing out its next debt payment due date to 2007.

All eight operating units -- some of which include multiple casinos -- reported cash flow increases compared to a year ago, exceeding company expectations for the quarter, Landau said.

Cash flow -- defined as earnings before interest, taxes, depreciation and amortization -- is a key indicator of financial performance for casinos, fixed assets that often carry large interest and depreciation costs.

The Stardust in Las Vegas reported cash flow a hair above last year, at $4.7 million. Sam's Town in Las Vegas reported $7.8 million, a 27 percent increase. Casinos in downtown Las Vegas yielded $12.1 million, up 5 percent. The company didn't reveal numbers for individual properties there.

The company's most profitable casinos, Par-A-Dice in East Peoria, Ill., and Blue Chip in Michigan City. Ind., posted cash flow increases of 10 percent and 13 percent, respectively. Those properties reported cash flow of $14.8 million and $22.1 million.

The company is on schedule and on budget to open the Borgata in summer 2003, and in June celebrated the "topping off" of the outer structure, executives said.

The Borgata will mark the first casino opening in Atlantic City in more than a decade. It is jointly funded by MGM MIRAGE and will be marketed as an upscale megaresort in a city now populated by older properties.

During a conference call with analysts Wednesday, Boyd executives deflected talk of a possible new casino at the site of the company's aging Stardust casino. The landmark sits on more than 60 acres of land at the north end of the Strip. The company has in the past discussed the potential for revamping the property.

"We're very much focused on the Borgata right now," Landau said. "We're not in any rush at all to put together plans."

Steve Wynn's planned Le Reve casino, an expansion of the Fashion Show mall and the presence of the Turnberry Towers at the north end of the Strip will create interest in the region that will grow over the next several years, he said.

Boyd shares fell about 3 percent in trading early today, to just above $15 per share.