Boyd to begin paying a quarterly dividend

By Liz Benston

Thursday, July 31, 2003 | 11:28 a.m.

Shares of Boyd Gaming Corp. fell at least 9 percent in trading this morning despite news Wednesday that the company would initiate a cash dividend payment to shareholders and that early returns on its luxury Borgata casino in Atlantic City were stronger than expected.

The Borgata -- a joint venture with MGM MIRAGE that opened July 3 -- won an average of $1.6 million per day from gamblers in its first 26 days of operation, executives said during a second quarter earnings call Wednesday. That figure puts the property in third place behind Caesars Atlantic City and the adjacent Bally's casino, according to daily gaming win figures for the competing properties taken from July 2002. This month's totals aren't yet available.

The Borgata, which features 3,590 slot machines, won about $306 per machine per day over its first 26 days, executives said. That compares to an average of $262 across the Atlantic City market a year ago.

The Borgata's average win per table game per day was $4,257 compared to the market average last year of $3,122. The casino has 145 table games.

"They have 24 years of customer relationships and databases and experience and we have 26 days," said Boyd Chief Financial Officer Ellis Landau, referring to his major competitors Park Place Entertainment Corp. and Harrah's Entertainment Inc.

"Bugs worked out by them in 1979 we're working out today," he said. "We've had a lot of customers from the beginning and we don't think the crowds are a one-time or summer phenomenon."

That news didn't soften the blow of an otherwise lackluster second quarter. The Borgata won't contribute meaningfully to company earnings until 2004, after start-up costs and expenses are accounted for, executives said. The second quarter included $11.9 million in preopening costs related to the Borgata.

Second quarter profit fell 74 percent, to $4.4 million, as the Iraq war, the sluggish economy and higher casino taxes cut into returns. On a per share basis, the company earned 7 cents compared to 26 cents for the second quarter of last year. Boyd lowered its earnings per share guidance for the third quarter to 21 cents versus 26 cents anticipated by analysts. The company also said it would begin paying a quarterly dividend of 7.5 cents per share, payable Sept. 3 to shareholders of record Aug. 12. The move follows dividend announcements by other gaming companies after Congress cut the tax rate on dividend distributions.

Boyd stock fell 9 percent, to $16.09 in early trading today.

Excluding pre-opening casino expenses and a $3.5 million charge in the year-ago quarter for casino taxes in Indiana, the company earned 21 cents per share in the second quarter compared to 29 cents a year ago.

Analysts expected the company to earn 27 cents in the quarter. Cash flow across the company's nine properties fell about 10 percent, to $78.2 million. That was the first property cash flow decline at Boyd since the first quarter of 2001. Cash flow at the company's three properties in downtown Las Vegas was down 17.5 percent, primarily due to an increase in Hawaiian air charter costs, executives said. Business trends remain "solid," however, they said.

Cash flow was up at Sam's Town on the Boulder Highway but was down at the Stardust.

Companywide, Boyd hopes to beat last year's cash flow in the third quarter, Boyd President Don Snyder said. The decline follows eight consecutive quarters of meeting or exceeding cash flow from the prior year, he added.

Revenue was about flat with last year, at $312.5 million.

Analysts said the Borgata performed better than expected.

"Undoubtedly there was some 'honeymoon' effect in these very strong top-line results, especially in the first week," Lehman Brothers analyst Joyce Minor wrote in a research note to investors today. "However, we would also note that Borgata achieved these results without the service of 50 slot machines and, more importantly, without the service of all 2,000 rooms in the period."

The Borgata's 1,900 available rooms were 100 percent occupied last weekend, Borgata Chief Executive Officer Bob Boughner said.

Only about 1,100 rooms were available on opening day.

Non-gaming revenue represented about 23 percent of total revenue at the Borgata, more than double the market average, while 60 percent of that non-gaming revenue is cash, Boughner said.

Goldman, Sachs & Co. analyst John Kempf said said the casino's cash business is "surprisingly high" for an Atlantic City operator so far.

"We would expect both (non-gaming revenue and cash) percentages to decline as the company builds its database and begins increasing its complementaries," Kempf wrote in a research note.

About 235,000 people are listed in the Borgata's customer database. About 63 percent of those customers are over 50 years old, Boughner said.

Still, he said, the Borgata aims to increase the gambling market in Atlantic City as well as draw a different, younger customer base than the city has attracted in the past.

When asked what casino they frequented most, 12 percent of Atlantic City visitors in a recent Borgata survey -- the fourth largest segment of the study -- said Las Vegas.

The results indicate that Borgata "has been somewhat successful in reaching out to the Atlantic City rejector," Boughner said.

The company's call center is handling 11,000 inquiries per day.

"Our toughest challenges have all been volume-related," he said.