Profit falls at Mandalay Resort Group

Friday, March 4, 2005 | 11:33 a.m.

Profit at Mandalay Resort Group, which widely missed analysts estimates, fell 28 percent in the fourth fiscal quarter as business in Las Vegas was hurt by heavy rain, bad luck at the tables and higher health care costs.

The company reported profit of $16.4 million or 23 cents per share in the fourth quarter ended January 31 compared with $22.8 million or 35 cents per share for the same period a year ago.

Results included costs related to the company's buyout of MGM Mirage, an increase in reserve related to worker's compensation claims, a change in jackpot reserves, a write-off related to a discontinued projects and a gain in investments associated with the company's executive retirement plan.

Excluding these one-time items, Mandalay reported adjusted earnings of 32 cents per share. That compares to analysts' estimates of 61 cents per share.

Some analysts blamed the disappointing results on factors outside of the company's control and said that the underlying business, especially in Las Vegas, remains strong.

"We expect the quarter to be somewhat of an aberration, as we believe Las Vegas is still strong based on channel checks, room pricing checks, room pricing surveys and two recent visits to the market," Susquehanna Financial Group stock analyst Eric Hausler said in a research note to investors today. "We do not expect this is a harbinger of a potential slowdown."

Shares of Mandalay fell 7 cents to $70.77 per share in midday trading today. The company's stock has remained fairly stable in recent weeks, trading just below the $71 per share that MGM Mirage is offering for the company. The bad earnings news dragged down shares of MGM Mirage by nearly $2 to $73.71 in midday trading.

Executives did not discuss their quarterly results and did not hold a conference call Thursday. MGM Mirage is expected to consummate its $7.9 billion buyout of Mandalay Resort Group by the end of this month.

Record rainfall in Southern California and Nevada contributed to lower than expected profit in January, the company said in a statement. A higher-than-normal percentage of bets won by gamblers at Mandalay Bay cost the company about $6.5 million during the quarter. Health care costs rose $2.8 million, or 7 percent, in the fourth quarter and for the year, rose $17.8 million, or 12 percent. Also, higher casino taxes in Michigan, where the company has a 53.5 percent stake in a Detroit casino, took effect in September and cost the company about $6.3 million.

Revenue rose 7 percent in the fourth quarter to $645.6 million.

In Las Vegas, operating cash flow rose 7 percent and revenue per available room -- a figure that doesn't include rooms that are out of service -- rose 10 percent, the seventh consecutive quarter with a double digit increase from a year ago, the company said.

Profit at Mandalay Bay more than doubled to $15.6 million. The average daily rate rose $13.10 per night to $205.36. The occupancy rate was 75 percent compared with 76 percent a year ago.

Rates were up at the company's other Las Vegas properties, but profit at Luxor and Circus Circus fell. Net income at Excalibur was fairly flat.

For the full year of 2004, the company reported profit of $229.1 million compared with $149.8 million in 2003. Operating cash flow -- generally defined as earnings before interest, taxes and other fixed costs -- was $753.7 million compared with $648.1 million a year ago.