Mandalay stock jumps 9 percent

By Liz Benston (contact)

Friday, June 4, 2004 | 10:57 a.m.

Shares of Mandalay Resort Group jumped more than 9 percent this morning following the company's announcement Thursday that first quarter profit hit a record, nearly doubling from a year ago.

Mandalay stock rose $5.08 to $59.70 in early trading today after executives said the casino giant benefited from rising room rates across the Las Vegas Strip as well as increased visitor traffic generated by its Mandalay Bay Convention Center.

"We are experiencing an economic boom in Las Vegas," said Tony Alamo, senior vice president of operations at Mandalay Resort Group. "As we increase (room rates and hotel revenue), we're also increasing the quality of customer we bring in."

The company's five Strip resorts -- including its half-owned Monte Carlo property and new hotel tower at Mandalay Bay -- have boosted hotel rates as demand for Las Vegas has grown, executives said.

The increase in year-over-year room revenue for the first quarter was "one of the most dramatic surges in the history of Las Vegas," President and Chief Financial Officer Glenn Schaeffer said.

Schaeffer said room rates on the Strip were up about 15 percent in May from a year ago and also were tracking at double digit growth rates in the second quarter.

Las Vegas is undergoing a "new popularity" with hipsters and baby boomers, he said.

"It's the most exotic trip you can take in the United States," Schaeffer said. "The baby boom customer is not only spending more, they're living longer. This is the best thing they can see and do for the price."

Profit rose 98.3 percent to $87.3 million for the first quarter ended April 30. On a per share basis, earnings jumped to $1.30 per share from 69 cents a year ago, beating analysts' expectations of $1.11 per share.

Revenue of $729.4 million was up 18.3 percent. Operating cash flow, typically defined as earnings before interest, taxes, depreciation and other charges, was $234.7 million compared to $172.4 million for the same period a year ago.

During a conference call to discuss earnings, Schaeffer said the company isn't seeing any negative effect from rising gas prices. In fact, business from the city's principal feeder market is up, he said.

"This year for the first time in a few years, there's a decided increase in market share from Southern California," Schaeffer said. "They're actually driving by those Indian casinos to come to the Las Vegas Strip."

Schaeffer said the company is expected to generate some $800 million in cash over the next two years that will be available to pay off debt or issue dividends.

He declined to speculate on a launch date for the company's next major casino in Las Vegas, which would be built on land the company owns south of Mandalay Bay. No major projects have yet been scheduled for this coming year or next, he said.

"All things in due course," he said. "We think our prices will go up when (Wynn Las Vegas) opens (next year) and we're continuing to produce ever more profits on less capital invested. That's good for stock prices," he said.

David Anders, a gaming analyst with Merrill Lynch, said casino revenue has improved as the company's new hotel tower at Mandalay Bay has attracted higher-end customers on weekends. Mid-week convention-goers also may be apt to spend more money in the casino if their rooms and meals are expensed, he said. The convention center at Mandalay Bay also appears to be boosting room rates mid-week, he said.

"Business has been strong on the Strip in general but Mandalay's has been superb," Anders wrote in a research note to investors today.

"Relative to hotel demand in other major metro areas, Las Vegas continues to build momentum and we believe the key demand drivers -- robust leisure spending and market share gains of the Las Vegas convention centers -- will remain in place for at least another couple of quarters," Anders wrote.

The company's 1,117-suite tower, which opened in December at Mandalay Bay, appears to be generating incremental cash flow of $20 million, he said.

In a separate research note, UBS Warburg analyst Robin Farley said the figures more likely represented a recovery from the Sept. 11 attacks rather than a long-term and sustainable growth rate.

Room rates at Mandalay Bay were about 11 percent higher in the first quarter than in the same quarter in 2001, she said.