Penn National posts strong numbers

Vicki Smith

Friday, July 30, 2004 | 9:08 a.m.

Penn National Gaming Inc. reported a record profit again this week, posting a second-quarter gain of $19.7 million that exceeded expectations.

That translates to 48 cents per share on revenue of $301.5 million for the period ending June 30, beating projections by 4 cents per share, the Wyomissing, Pa., company said Tuesday.

The results are up from $15.5 million, or 38 cents per share, on revenue of $291.2 million for the same period last year.

Penn National has been diversifying and expanding for a decade, and Chief Executive Peter M. Carlino told investors to expect that to continue at least three more years.

"We view ourselves as a consolidator in this industry," he said. "There's never a moment or second that we're not looking at anything and everything that could make sense for us."

The company is already planning slot parlors at tracks in Maine and Pennsylvania, and Carlino said it will take "a very aggressive yet disciplined approach" toward other opportunities.

Nearly every Penn National property improved in the second quarter, including Charles Town Races & Slots in Charles Town, W.Va., which generated $101.5 million, or one-third of all revenue.

Penn National's holdings include Casino Magic, Boomtown Biloxi and the Bay St. Louis resort in Mississippi; the Casino Rouge riverboat in Louisiana; Bullwhackers casino in Colorado; and Hollywood Casinos in Tunica, Miss., and Aurora, Ill. The Hollywood property in Shreveport, La., is for sale.

While growth is on the agenda, Carlino acknowledged Penn National has been cool to the idea of table game legislation in West Virginia, troubled by two aspects of the plan endorsed by the state's three other racetracks.

Table games should not be taxed the same as slots, and local voters shouldn't decide whether to legalize them, Carlino said.

"We believe the Legislature should decide. There can't be winners and losers," he said. "Either the state wants it or the state doesn't."

Penn National also wants the tax formula to be based on win, not a flat percentage.

"The state also fails to recognize that this is a business where you can lose money," he said. "It should be related to the success of the game on day by day, hour by hour basis."

But table games could profoundly affect Charles Town's image as a destination resort, and Penn National is still open to the concept.

"We'll support it -- if it's a bill that makes sense," Carlino said.

Meanwhile, a new slot machine law in Pennsylvania should help reverse trends at Penn National's two racetracks and 11 off-track wagering facilities in that state. The company aims to open its first slot parlor at its Penn National track near Harrisburg, Pa., in early 2006.

Expansion and renovations will cost up to $150 million, including Pennsylvania's $50 million licensing fee and the purchase of 2,000 machines. Another 3,000 machines will be installed if customers demand them, Carlino said. The track could generate $160 million in revenue in its first year and $310 million a year with 5,000 machines.

However, the Pennsylvania law has a catch: While Penn National may own 100 percent of one slot parlor, it can own no more than 33 percent of any subsequent operation. That leaves the fate of Pocono Downs in limbo while the company weighs its options.

Penn National also now owns a harness racing track in Maine that Carlino said is the only location in the state currently eligible for slots.

Penn National is still awaiting final regulatory approval but expects install 1,500 machines and invest $125 million in renovations. Carlino said he's met with Gov. John Baldacci, who is "utterly committed to getting us licensed and operating in Maine in the shortest possible time."