Boyd Gaming profit declines

By Liz Benston (contact)

Wednesday, Oct. 22, 2003 | 11:04 a.m.

Early returns from Boyd Gaming Corp.'s Borgata resort in Atlantic City weren't enough to save the company from a 32 percent decline in profit during the third quarter as higher taxes and expenses clipped returns in several states.

Recent tax increases in Nevada, Indiana and Illinois cost the company about $8 million. And increased marketing expenses to draw customers to the company's aging Stardust casino on the Las Vegas Strip "cost us some money but they didn't bear fruit," Boyd Gaming Chief Financial Officer Ellis Landau said during a conference call with investors Tuesday.

The Stardust reported a $4.1 million operating loss during the third quarter and negative cash flow of $559,000. A year ago, the property lost $412,000 on $3.1 million of cash flow.

The company fell short of analysts' profit estimates by a penny per share, though shares rose about 10 cents to $15.40 in trading this morning.

The Borgata resort, which opened July 3 and is half owned by MGM MIRAGE, topped the company's financial targets but did not contribute a significantly to earnings, Landau said.

He called the poor results a "hiccup" and said the company is likely to do better in the fourth quarter.

"Third quarter was decidedly mixed but we are optimistic as we move forward toward 2004," added Boyd President Don Snyder.

The company earned $7.7 million during the quarter or 12 cents per share, down from $11.3 million or 17 cents per share a year earlier.

Excluding one-time expenses, the company earned 15 cents per share in the third quarter, a penny short of analysts' estimates. That compares to 23 cents for the same quarter of last year.

The Borgata reported $184 million in revenue for the quarter. Revenue was $150 million minus corporate expenses. Gaming revenue for the property was $136 million, second only to Park Place Entertainment Inc.'s larger Bally's-Claridge property in gaming win. Table game win was $47.6 million, topping the market. Cash flow was $30.5 million.

Profit margins are improving at the Borgata, which until now has been primarily focused on attracting customers rather than improving Boyd's bottom line, said Bob Boughner, chief executive officer of Borgata.

The resort is generating half a million dollars per day in non-gaming revenue and roughly 56 percent of that is cash, a sign that the city is attracting more than its typical roster of lower-end gamblers, he said.

Other properties were mixed. Sam's Town in Las Vegas generated $6.6 million in cash flow in the third quarter, down from $7 million for the same period last year. Boyd's downtown properties reported $7.6 million in cash flow compared to $8.7 million a year ago.

The company's Par-A-Dice casino in East Peoria, Ill., was hit most by casino taxes. Cash flow was $6.8 million compared to $13.6 million a year earlier.

The company's Delta Downs racino in Vinton, La., and the Blue Chip in Michigan City, Ind. -- despite a tax increase in that state -- performed reasonably well during the quarter, Landau said.

Cash flow at Delta Downs rose to $7.8 million from $5.8 million. And Blue Chip generated $23.3 million compared to $24.3 million. The company is pursuing previously announced plans to expand the casinos at both properties.

Revenue companywide was up 1 percent, to $311 million. Cash flow was up 3.4 percent to $75.7 million. Excluding the Borgata, cash flow was down 17.5 percent to $60.4 million.

Excluding one-time events, the company earned 15 cents per share, meeting analysts' estimates that were cut when the company announced Oct. 6 that it would miss expectations of 21 cents per share. That compares to 23 cents per share earned the same quarter of last year. The items include pre-opening expenses for Borgata and a loss on the early retirement of debt.