Boyd profit improves despite higher taxes, poor weather

Friday, April 25, 2003 | 10:53 a.m.

Record performance at Boyd Gaming Corp.'s Sam's Town casino on Boulder Highway helped boost the company's first quarter results past analysts' expectations, though higher casino taxes and bad winter weather hurt properties in the East and Midwest.

Slot machines at the company's Delta Downs racetrack in Louisiana also improved performance as the "racino" gathered more customers after introducing slots there in February 2002.

"This is the progress we were hoping for with both properties," Boyd Gaming President Don Snyder said.

"We feel very good about these numbers," added Ellis Landau, the company's chief financial officer. The Iraq war and sputtering economy contributed to a "difficult operating environment," he said.

During a conference call Thursday to discuss first quarter results, Boyd executives revealed little about the much-anticipated opening of its $1 billion luxury Borgata resort in Atlantic City with partner MGM MIRAGE. It has narrowed the opening date from sometime between mid-June and the last week of July, when a major gaming industry awards dinner will be held at the property.

Boyd reported a jump in profit, to $16.4 million, from $7.8 million in the first quarter of last year. Earnings per share were 25 cents compared to 12 cents in the year-ago quarter.

The results last year include a one-time charge for goodwill expenses amounting to 13 cents per share.

On an operating basis, earnings were 29 cents per share compared to 31 cents per share -- or $19.1 million compared to $19.9 million. Analysts had expected the company to earn 28 cents per share.

The company didn't offer a profit estimate for the second quarter, though it expects second quarter operating earnings to fall short of the first quarter as it did last year.

Net revenue rose 6.3 percent, to $322 million, driven mainly by the permanent docking of the company's Blue Chip riverboat casino in Michigan City, Ind., and a full quarter of slot operations at Delta Downs, the company said.

Before certain corporate expenses such as pre-opening casino marketing costs, cash flow was about $77.5 million compared to $77.6 million in the year-ago quarter.

Revenue increased 8.1 percent at Sam's Town, to $35.7 million. Cash flow jumped 30.8 percent, to $10.6 million -- the highest ever generated at the property, the company said.

Cash flow -- typically defined as earnings before interest, taxes, depreciation and amortization -- is a key indicator of casino performance.

Executives attributed the increase to the return of regular customers to the property as well as fine-tuning operating expenses.

Cost-cutting was often responsible for the property's cash flow generation in years past, Landau said. More recently, revenue growth has gone straight to the bottom line, boosting results.

"I think we were doing a better job at delivering a good quality product and a good quality service," he said.

The results were impressive considering that the Boulder Strip market has matured and the property already improved returns significantly last year from the year before, Lehman Brothers analyst Joyce Minor said.

Delta Downs reported a revenue gain of 48.2 percent, to $36.9 million -- the strongest return since Boyd bought the racetrack in 2001. Cash flow jumped 88.3 percent, to $8.3 million. Last year's $4.4 million doesn't account for $5.4 million in preopening expenses for the facility. The property's slot machines won the most ever from gamblers in the quarter, averaging $256 per machine per day.

Boyd has promised improved performance at Delta Downs over the past few quarters as the company builds up a base of customers and learns how to attract them amid stiff competition from neighboring casinos. It also is exploring adding a hotel at the track, which site on more than 200 acres.

Revenue at the Stardust increased 1 percent, to $35.9 million and cash flow increased 6.9 percent, to $4.8 million. The company didn't offer any more details Thursday about previously announced plans to someday redevelop the aging resort, which sits on 61 acres of largely vacant land on the Strip.

The company's three downtown casinos -- Main Street Station, California and Fremont -- reported 2.1 percent growth in revenue. But cash flow fell 4.6 percent, driven by higher fuel costs and other operating expenses associated with its company-owned airline charter service from Hawaii. The company credits the charter with filling its properties with Hawaiian tourists during otherwise depressed periods for tourism.

"Charters were essentially full for the quarter," Landau said.

Revenue at the Par-A-Dice riverboat casino in East Peoria, Ill., fell 1.8 percent and cash flow dropped 13.8 percent as that property faced significantly higher taxes on casino revenue this year, the company said.

The company's Blue Chip riverboat in Michigan City, Ind., faced a smaller increase in casino taxes, though in exchange for permanent docking. Revenue rose 7.5 percent but cash flow dropped 9.8 percent in the first quarter.

Revenue at the New Orleans-area Treasure Chest casino in Kenner, La., declined 2.9 percent and cash flow dropped 9.7 percent. The company is considering an expansion at that location, though details weren't discussed.

For competitive reasons, the company refused to elaborate on what it will spend on marketing at the Borgata and the kinds of promotions the resort will offer. Some analysts have said that the Borgata will require relatively little promotion for a major resort, as it is already generating considerable buzz as the seaboard gambling town's first new property in more than a decade.

The launch date will be known by at least June 1, when the company will open a reservation call center. The company already has begun booking convention center dates at the Borgata starting Sept. 1.

The company has received an unprecedented 47,000 employment applications, of which it has interviewed 20,000 people and completed second interviews with about 10,000, Borgata Chief Executive Officer Bob Boughner said.

More than 40 percent of the property's staff has been hired, he said.

While the Borgata will become a key growth driver this year and beyond, Boyd is financially secure enough to explore future projects, Deutsche Bank analyst Marc Falcone said.

"With nearly $150 million of free cash flow available in 2004 and a healthy balance sheet, investors should look beyond the opening of Borgata and towards the numerous internal/external growth opportunities which Boyd can pursue in the future," Falcone wrote in a research note today.