Station stock declines on weak outlook

Tuesday, July 23, 2002 | 11:20 a.m.

Shares of locals' casino operator Station Casinos Inc. of Las Vegas fell by more than 18 percent this morning as the company warned investors it would miss Wall Street earnings expectations for the third quarter, driven by the region's usual summer slowdown and a still-weakened economy.

Still, the company beat analysts' expectations for the second quarter, reporting better-than-expected earnings and strong cash flows boosted by the company's new upscale Green Valley Ranch Station Casino in Henderson.

The company projects profits of 9 to 10 cents per share in the third quarter, compared with analysts' estimates of 13 cents per share.

"The local market is showing improvement, but it has not fully recovered" from the effects of Sept. 11, Chief Financial Officer Glenn Christenson said today. Seniors have less disposable income and fewer visitors are coming to McCarran International Airport, he added.

Still, the company expects operations to improve as the local economy recovers, Christenson said. Also, the Le Reve hotel-casino, Steve Wynn's $2.5 billion luxury Strip resort expected by 2005, should stimulate new growth that will feed into the expansion of the locals' market, he noted.

The company also announced plans Monday to build an upscale casino resort in the Summerlin master-planned community.

Station reported earnings of $8 million, or 13 cents per share, for the second quarter. That compares to earnings of $3.8 million, or 6 cents per share, for the same period a year ago. This year's figures include one-time charges such as the writeoff of an Internet gambling platform. The write-down is of certain assets related to a $3.9 million investment in an intra-state Internet gambling system and related technology, as well as a $700,000 investment in a restaurant at Green Valley Ranch Station, the company said in a statement. Further details were not available by press time today.

Revenues fell 6.6 percent for the quarter, from $212.8 million to $199.6 million.

Excluding one-time charges, the company earned $10.9 million, or 18 cents per share, compared to $10.6 million, or 18 cents per share, a year earlier.

Analysts had expected the company to earn 16 cents per share.

Excluding Green Valley Ranch Station Casino, revenues for the company's major Las Vegas properties declined 4 percent, to $192 million. But cash flow at those operations increased 4 percent, to $65.7 million.

Green Valley Ranch Station, which opened in December, generated $28.3 million in revenue during the quarter, offsetting the decline in revenues at the company's other major Las Vegas properties, the company said.

The upscale hotel-casino reported cash flow of $10.7 million in the quarter, excluding $1.1 million in management fees and a $1.4 million writeoff for a restaurant investment. Station Casinos, which has 50 percent ownership of Green Valley Ranch Station, receives a management fee of about 2 percent of revenue and 5 percent of cash flow. The casino is jointly owned with the Greenspun family, owner of the Las Vegas Sun.

"We have demonstrated that we can generate strong return on investment by adding a quality gaming product to the Las Vegas locals' market," Christenson said.

The planned Summerlin casino would be Station Casino's 10th big locals' property and its first in the affluent Summerlin district of Las Vegas.

The casino, which has not yet been named, would mark the company's second upscale development on par with the company's Green Valley Ranch Station casino. The company expects to begin construction in late 2003 or early 2004. The entire cost and scope of the project has not yet been determined, officials said.

The property will likely be the first of several gaming-entitled properties Station will develop in the Las Vegas Valley in the next five to seven years, one Wall Street analyst noted today.

"We believe Station will wait until late 2003 to break ground on the project, given the company's near-term focus on reducing debt and the need for more residential and commercial development in the area to maximize return on investment," Bear, Stears & Co. gaming analyst Jason Ader wrote in a research note.

Other possible future developments include Station properties at Durango Drive and Interstate 215 and Flamingo at I-215, both located in the southwest corner of the Las Vegas Valley.

"Given the continued population growth and commercial development in Summerlin and along the western section of the I-215 beltway, and the success that (Coast Casinos Inc.'s) Suncoast has had further east on Charleston, we believe that this site presents an attractive growth vehicle for Station in 2005 on," Ader said.

Station Casinos reached a deal with Summerlin developer Howard Hughes Corp. that allows the casino operator to build a hotel-casino at Charleston Boulevard and I-215. After a due-diligence period that expires in October, Station expects to make a payment of $6.4 million toward the purchase price of $65 million. Station expects to close the purchase of the 73-acre parcel in the second quarter of next year.

The hotel-casino will be located in Summerlin Centre, a 1,300-acre town center under development.

The size of the casino will be similar to Station's Sunset Station, the company's most profitable casino, company executives said. The company will use the same architects and designers that created the company's Green Valley Ranch Station.

The company's stock fell to about $11.60 in late morning trading.