Station Casinos’ cash flow, revenue increase

By Liz Benston (contact)

Tuesday, April 20, 2004 | 10:36 a.m.

A $93 million charge to refinance debt depressed first-quarter earnings at Station Casinos Inc., but profit more than doubled without the charge on the strength of the company's locals casinos, officials said today.

Company officials also raised future profit estimates for the company and its upcoming Red Rock Station casino in Summerlin, saying lower debt costs would boost earnings.

Station executives said today they are ramping up casino development deals with Indian tribes and expect to spend about $7 to $8 million this year -- or about $2 million per quarter -- primarily to seek lucrative tribal contracts. On top of that, the company also anticipates paying at least $14 million in non-reimbursable costs to three separate tribes to help develop casinos.

"We're seeing a lot of return" on those costs," Chief Financial Officer Glenn Christenson said. "We believe we'll have even more opportunities to manage casinos for tribes."

Analysts said they continue to be impressed by the company's growth prospects for new Las Vegas casinos as well as its success in striking deals to build casinos for Indian tribes. The company broke ground last week on Red Rock Station at Charleston Avenue and I-215 and has signed contracts with five tribes.

"Station maintains one of the deepest growth pipelines in the (gaming) industry," Merrill Lynch analyst David Anders wrote in a research note to investors today.

Added Goldman, Sachs & Co. analyst Steven Kent: "We believe Station's results are a clear sign that the locals market continues to be quite robust and that the strength in Las Vegas is not limited to just the Las Vegas Strip."

Station Casinos stock rose $1.63 per share to $48.90 in early trading today.

The company reported a loss of $29.8 million in the first quarter of this year compared to a profit of $12.6 million the same quarter a year earlier.

That includes one-time expenses including a $93.3 million loss on the early retirement of debt, $2 million to develop new casinos primarily with Indian tribes and a $2 million payment related to the development of a tribal casino in Michigan.

Excluding non-recurring charges, the company reported profit of $33.5 million or 51 cents per share, beating analysts' expectations of 46 cents per share in the first quarter. That compares to profit of $14.3 million or 23 cents per share in the same quarter of last year.

Revenue rose 18 percent to $255.8 million. That includes promotional expenses of $16.8 million, down 7 percent from a year ago.

The $93 million loss on debt is related to a major debt refinancing. Taking advantage of lower interest rates, the company saved about $15 million by refinancing virtually all of its senior and senior subordinated notes and issuing $1.25 billion in new notes, Christenson said. The refinancing is expected to help reduce borrowing rates to about 3 to 6 percent, among the industry's lowest, Christenson said.

Lower debt cost is expected to boost earnings expectations for Red Rock Station from 6 cents to 11 cents in the first year to between 20 cents and 25 cents. The third year of operations should yield from 39 cents to 44 cents per share in profit compared to earlier expectations of 25 cents to 31 cents, officials said.

The company said it expects to earn 45 cents to 49 cents per share in the second quarter of this year, or about $86 million to $90 million in cash flow. Officials said they expect earnings of about $1.81 per share to $1.96 per share for the full year, or about $350 million to $365 million in cash flow.

That tops analysts' expectations of 45 cents per share in the second quarter and $1.80 per share in 2004.

Cash flow rose 42 percent over the same period to $94.1 million.

Revenue at the company's eight largest locals casinos, including its half-owned Green Valley Ranch Station in Henderson, rose 11 percent to $250.5 million. Excluding Green Valley Ranch Station, the company's newest and most lucrative casino, revenue grew 9 percent to $210.6 million. Those figures exclude promotional expenses.

Green Valley Ranch Station is part owned by the Greenspun family, owner of the Las Vegas Sun.

Growth at the older casinos is a sign that the company's "strong product mix like 'Jumbo Jackpot' is attracting and maintaining the customers," Kent of Goldman Sachs wrote in a research note today.