MGM MIRAGE earnings soar; beat expectations

Wednesday, July 24, 2002 | 11 a.m.

Las Vegas Strip casino resort operator MGM MIRAGE today reported record earnings for the second quarter that were helped by a better-than-expected recovery from the effects of Sept. 11 and a particularly strong performance by its Bellagio hotel-casino.

The company reported earnings, after one-time credits and expenses, of 63 cents per share, compared to 47 cents per share for the same quarter a year ago. Profits totaled $101.9 million, up from $76.6 million a year earlier.

Investors apparently were impressed, pushing MGM MIRAGE stock up 4 percent or $1.25 this morning.

On a conference call with investors today, company executives said MGM MIRAGE was on track to meet analysts' estimates for the third quarter.

Before one-time events, the company earned 56 cents per share in the second quarter compared to 48 cents a year earlier. Analysts had expected the company to earn 50 cents per share before special items.

The items include casino preopening expenses, restructuring credits and fees received from a buyout of a South Africa management agreement. The company completed the sale of its interests in South Africa during the quarter, executives said.

A major credit boosting earnings was $10.4 million or 4 cents per share to reverse an earlier charge for laying off and firing workers because of the 2001 economic slowdown. MGM MIRAGE said today that because of improving business levels, it continues to re-hire workers who had been idled by the slowdown.

This is good news for the Las Vegas economy, where MGM MIRAGE is a huge force with its 15,994 hotel rooms and 28,000-plus employees at five Las Vegas Strip properties, not including its 50 percent partnership in the Monte Carlo.

Cash flow increased from $324.8 million to $336 million during the quarter. Bellagio reported cash flow of $90.4 million for the quarter, up from $76.3 million a year ago. MGM Grand Detroit also topped the performance list, posting $42.1 million, compared to $34.1 million a year earlier.

Cash flow -- typically defined as earnings before interest, taxes depreciation and amortization -- is a key indicator of casinos' financial health.

Other major properties showed declines in cash flow, or were relatively flat for the quarter. Mirage fell the most, from $47.7 million to $37.1 million this quarter. Still, executives said the results were strong considering the broad economic decline.

Company executives touted the history of cost savings at MGM MIRAGE. The company has already saved more than $40 million at the corporate level and more than $200 million at the operating level, exceeding the $150 million in promised savings following the 2000 merger of MGM Grand Inc. and Mirage Resorts Inc.

"The companies are more efficiently operated today than they were two years ago" as separate entities, Chief Financial Officer Jim Murren said in a conference call to investors today.

The company also reduced debt by $153 million during the quarter and repurchased one million shares of company stock.

Wall Street analysts said the company's performance affirmed news that the Las Vegas market is on the rebound.

"These results are good, affirming that the Las Vegas recovery is ahead of expectations," said Lehman Brothers gaming analyst Joyce Minor.

However, the earnings boost was mainly concentrated at the Bellagio, rather than broad-based, she said.

"We are very encouraged by the strength of (MGM MIRAGE's) fundamentals ... the company has done an excellent job expanding margins," Todd Jordan, a gaming analyst with Dresdner Kleinwort Wasserstein, said in a research note today.

The company will soon begin construction on a new hotel tower at Bellagio that will add 950 rooms, including 125 suites, as well as 70,000 square feet of convention and meeting space, two restaurants and an expanded spa and salon, executives said. The previously-announced project was put on hold after the merger of MGM Grand with Mirage Resorts in 2000.

Two new bars are also planned for the MGM Grand casino, the company said. The property will discontinue its Lord of the Dance show in the third quarter in expectation of a new Cirque du Soleil show in the third quarter of 2003.