MGM 2Q profit drops 69 percent

By Liz Benston

Published Tuesday, Aug. 5, 2008 | 6:45 a.m.

Updated Tuesday, Aug. 5, 2008 | noon

While the economic decline contributed to MGM Mirage’s 69 percent drop in net income and a 2 percent decline in revenue in the second quarter compared with a year ago, executives hardly betrayed any disappointment today during a conference call with investors.

They were bullish, even boastful, pointing out that their Strip casinos outperformed competitors and were expected to improve on that performance in the fourth quarter.

Executives also assured Wall Street that a $3 billion financing package for the remainder of the company’s under-construction CityCenter complex would be complete by the end of September, later than expected because of the credit crunch yet at better interest rates than if the company had executed agreements earlier.

“Our numbers have been rather good” given the economic decline, Chief Executive Terry Lanni said. “Las Vegas didn’t fall off the end of the earth, into the abyss.”

Recent cancellations and delays of competitors' Strip projects, like Echelon and Plaza Las Vegas, would benefit MGM Mirage by giving the company more leverage with contractors and a dominant position in the market, executives said.

Company shares rose more than 6 percent this morning.

Executives boasted that Bellagio, the company’s most high-end property, generated operating earnings that were 39 percent higher than Wynn Las Vegas and 7 percent higher than Venetian and the recently opened Palazzo combined. Also, Mandalay Bay reported the property’s highest second quarter operating earnings on record.

Casino revenue across the company fell 4 percent and room revenue fell 6 percent. Nongaming revenue, including food and beverage, entertainment and retail, fared better, falling 1 percent. In that category, revenue from the company’s Cirque du Soleil production shows was up 3 percent.

Some analysts said results in Las Vegas turned out better than expected. The company’s profit margin was about 30 percent, compared with 33 percent a year ago.

Cost cuts and property upgrades helped the company shore up losses during the downturn, executives said. Those moves included layoffs as well as new restaurants and clubs.

MGM Mirage has top-tier hotels in each market segment and an advantage over smaller competitors because it can offer a range of price points to consumers seeking more options, Lanni said. The downturn continues to hurt lower-end properties more than higher-end properties such as Bellagio, Mirage, MGM Grand and Mandalay Bay, which have also benefited by an influx of foreign tourists taking advantage of the weak dollar, he said.

“We have great physical facilities and we’ve consistently reinvested substantial sums of money, which allows customer to enjoy a better product at every level,” he said.

The company’s average daily room rate on the Strip, along with revenue generated from occupied rooms, fell 5 percent, to $155, in the second quarter versus a year ago. Occupancy declined a percentage point from last year to 97 percent.

Lanni said the company’s high-roller activity is weathering the downturn. Baccarat volume was up in the quarter but down on the Strip, he said.

Based on operating profit, a measure of earnings that excludes certain items like taxes and depreciation, Bellagio reported $114 million in the second quarter versus $82 million for Wynn Las Vegas and $107 million for the Venetian and Palazzo resorts. Bellagio’s loyal fan base, as well as being part of a 10-resort empire on the Strip, which enables cost efficiencies, helped results, executives said.

Lanni said his company is more focused on luring Asian high-rollers to Las Vegas than competitors at Venetian and Wynn, which generate most of their earnings in China rather than in Las Vegas.

In terms of operating profit, Wynn Macau generated $155 million and Venetian Macau earned $140 million in the second quarter versus MGM Grand Macau’s $23 million.

Wynn “cleaned our clock” in Macau, Lanni admitted. Executives expect to grow market share, like they have in Las Vegas, by

adding more high-limit tables and making other upgrades to the property, which opened in December.

“I compliment him,” Lanni said of his rival, Steve Wynn. “We want to emulate (Wynn Macau) and use it as our target.”

Liz Benston can be reached at 259-4077 or at benston@lasvegassun.com.