MGM Mirage to post 3rd-quarter earnings Wednesday

Oscar Garcia, Associated Press

Tuesday, Oct. 28, 2008 | 6:23 p.m.

MGM Mirage Inc. is to report its third-quarter financial results before the market opens Wednesday. Below is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Las Vegas-based MGM Mirage is the world's second largest gambling company by revenue, with success tied to developing and operating casino resorts. MGM Mirage owns 17 casinos and has 50 percent shares in four other resorts.

Like other casino companies, MGM Mirage has taken big hits as people traveled and gambled less this year. A decline in air travel and driving traffic to Las Vegas especially affects MGM Mirage, which owns 10 casinos on the Las Vegas Strip, more than any other casino company.

Through August, room rates for the year were down 7.7 percent in Las Vegas compared to the first eight months of 2007, and gambling revenue was down 6.7 percent on the Strip. At the same time, air traffic has dropped 5.7 percent in 2008 compared to the first nine months of 2007, according to airport figures released Monday.

The company is also working on a $9.2 billion casino, retail, hotel and residential complex scheduled to open in late 2009. It is said to be the most expensive private commercial development in U.S. history. The project has taken longer to finance than the company originally wanted, but MGM Mirage has insisted that it will conclude on schedule.

MGM Mirage officials said last week that it is telling employees not to expect performance bonuses at the end of the year, because the company did not expect to meet the profit goals that trigger the bonuses. A spokesman said the bonuses would have totaled "in the millions" of dollars but would not specify an amount or say how many employees would have received them. The company has roughly 64,000 employees.

MGM Mirage reported profits of $113 million in the second quarter this year, nearly 69 percent below its income in the same period last year.

BY THE NUMBERS: Analysts polled by Thomson Reuters expect MGM Mirage to earn 31 cents per share on $1.82 billion in revenues, a 50 percent decrease from last year.

ANALYST TAKE: MGM Mirage's stock has declined as part of the general industry decline and as investors worry about CityCenter financing and the Las Vegas tourism market, but there may be more to come.

Morgan Stanley analyst Celeste Mellet Brown wrote in a recent note to investors: "We believe Las Vegas fundamentals are worse than investors' estimates reflect."

According to Deutsche Bank analyst Bill Lerner, guests are continuing to visit casinos but aren't spending as much.

"The mid- to low-end segment of the business continues to be weak, while the high end is holding up," Lerner said in a recent note.

But KDP Investment Advisors analyst Barbara Cappaert said MGM Mirage is one of the stronger companies in the sector because of its management.

"When the dust clears on the current market, we feel investors will appreciate the assets in MGM's structure as well as the decent asset coverage," Cappaert said.

WHAT'S AHEAD: Investors will be looking for bottom-line effects from revenue dips in Las Vegas and Macau, the Chinese gambling enclave. China recently tightened restrictions on its residents' travel to the island, and Chinese nationals make up more than half the patrons of its casinos.

Investors will want new details on CityCenter, including condominium sales and financing for the project.

Lerner said risks for MGM Mirage are continued economic weakness, increased competition for high-end customers, high exposure to the Las Vegas Strip and weakness in the Asian economy affecting traffic to Macau.

"MGM is subject to development and execution risk with CityCenter under way, as well as a risk of higher cost of capital to move forward with existing or future projects," Lerner said.

STOCK PERFORMANCE: MGM Mirage's stock price has fallen dramatically from its 52-week high of $95.66. The dip sharpened after Sept. 19, when it was at $34.98. Shares fell as low as $8.91 during trading on Tuesday before closing up 28 cents, or 2.8 percent, at $10.33.