MGM MIRAGE profit falls

Tuesday, Oct. 21, 2003 | 11:17 a.m.

MGM MIRAGE said today it would take a one-time charge of $4 million to close of the Siegfried & Roy magic show at the company's Mirage resort on the Las Vegas Strip.

The closure also is expected to cost the company about $2.5 million in cash flow in the fourth quarter and as much as $12.5 million next year if the show isn't replaced.

Some analysts reached today said the expenses were in line with what they had expected. Early estimates had pegged one-time charges at $3 million to $5 million and revenue reductions of $5 million to $10 million for the year.

During a conference call to discuss the company's third quarter results, MGM MIRAGE executives said they probably wouldn't install a replacement show at The Mirage for the remainder of the year following the tiger attack that critically injured performer Roy Horn earlier this month. The company also has no immediate plans to replace the show next year, though it is exploring options, executives said.

Over the past couple of weeks, discussions about Horn and the show have been left to "armchair analysts" and "armchair doctors" outside the company, MGM MIRAGE Chief Executive Terry Lanni said.

"We wish (Horn) a speedy recovery and a total recovery," he said.

The $4 million pretax charge against earnings will consist of about $2.6 million in severance payments and payroll expenses to show employees and about $1.4 million in the writedown of show equipment, MGM MIRAGE Chief Financial Officer James Murren said. The $2.5 million loss in cash flow accounts for show ticket profit as well as incremental business driven by traffic from the show, Murren said.

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

Also today, MGM MIRAGE reported a 32 percent drop in profit during the third quarter partly attributed to a decline in the percentage of bets won from gamblers at the Bellagio.

Executives still cited positive trends such as higher room prices, occupancy rates and spending patterns at its major resorts.

The company is benefiting from a "resurgence in high-end business ... reflective of a changing and improving economy," Lanni said.

Revenue at resorts including The Mirage, New York-New York and MGM Grand hit recent highs as customers spent more in all areas, executives said.

The addition of several non-gaming attractions, such as the Nine Fine Irishmen bar and Cirque du Soleil's "Zumanity" show at New York-New York, and newer, upscale restaurants such as Fiamma Trattoria at MGM Grand, are driving more casino and retail spending at those resorts in particular, they said.

At New York-New York, cash flow was up 20 percent, one of the highest quarters in the property's history, Mirage Resorts Inc. Chief Executive Robert Baldwin said. The company hopes to open an an access road from the Strip to the parking garage by the end of the month, which also will improve traffic, he said.

"Zumanity has proven to be the traffic machine we expected it to be," he said.

MGM Grand revenue jumped 10 percent to its best third quarter since 1996 and it reported the second-highest quarter of food and beverage revenue in the property's history, MGM Grand Resorts LLC Chief Executive John Redmond said.

On the downside, convention business at the MGM Grand is expected to be down about 10 percent in the fourth quarter. That somewhat reflects a larger trend in Las Vegas, though business in the first quarter is looking up, Redmond said.

Bellagio -- the company's most expensive and best performing property -- performed lower than some analysts had predicted for the quarter.

Cash flow at Bellagio fell 32 percent to $62 million from the prior year's quarter -- the worst for the property since the Sept. 11 terrorist attacks, analysts said. Construction disruption at Bellagio cost the company about $6 million during the quarter as a room remodeling project kept about 9 percent of rooms out of service, including some of the property's highest-priced rooms, executives said.

The remodeling project is expected to be complete by February, while a second hotel tower is under construction and is due to open in December 2004.

In a research note today, Goldman, Sachs & Co. analyst Steven Kent said other Las Vegas properties still beat estimates, "supporting our view that the Las Vegas trends have strengthened during the summer, but not convincing enough to suggest that the industry is fully recovered."

Strong non-gaming revenue across the company "was unable to overcome higher corporate expenses and low table game hold percentage relative to last year," added Bear, Stearns & Co. bond analyst John Mulkey in a separate research note. Non-casino revenue was up 8.4 percent for the quarter.

MGM MIRAGE earned $47.2 million or 29 cents per share, down from $69.6 million or 45 cents per share, the same period a year ago.

Last month, the company raised its third quarter earnings guidance to 35 cents per share from 30 cents per share, citing strong advance booking trends at its Las Vegas resorts.

Excluding certain one-time items, the company reported earnings of 36 cents per share in the third quarter, a penny short of analysts' average estimates for the quarter. That compares to 52 cents per share in the same quarter of last year.

The items included discontinued operations, preopening and start-up expenses, restructuring costs, property transactions net and loss on early retirement of debt.

MGM MIRAGE stock fell 71 cents to $35.49 this morning, a drop of about 2 percent.

Company executives said they were "comfortable" with analysts' average earnings estimate of 28 cents per share in the fourth quarter.

Revenue was up 4 percent to $990 million for the quarter. Cash flow, after corporate expenses, was down 5 percent to $279 million.

Room prices and occupancy rates were up at the company's major Las Vegas properties.

At the Bellagio, for example, average rates were $219 and occupancy was 96.7 percent. That compares to rates of $206 and an occupancy of 93.1 percent for the third quarter of last year. MGM Grand rates were $112, up from $103 a year ago. Occupancy was 95.6 percent, up from 92.8 percent.