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The world's third-largest casino operator in terms of revenue, Wynn Resorts Ltd. (WYNN - Analyst Report) reported first quarter 2012 adjusted earnings of $1.33 per share, lagging the Zacks Consensus Estimate of $1.40 as well as the prior-year quarter earnings of $1.38. On a GAAP basis, earnings per share stood at $1.23 versus $1.39 in the comparable quarter last year. The lower-than-expected results were due to weak Las Vegas operation.

Net revenue jumped 4.2% year over year to $1,313.5 million, thanks to the ongoing strong performance in Macau.

Macau Operations

Net revenue at Wynn Macau was $950.7 million in the quarter, up 9.8% year over year, driven by an increase in both VIP table and mass market table games.  

The table games turnover in the VIP segment climbed 14.6% from the prior-year period to $33.5 billion. However, VIP table games win was 2.59% based on turnover, down from the expected range of 2.7% to 3.0% as well as the year-ago level of 2.69%.

Table games in the mass market category rose 3.6% year over year to $707.4 million. The mass market table games win rate was 30.3%, which was higher than the expected range of 26% to 28% and 27.9% recorded in the year-earlier quarter

Average daily rate (ADR) at Wynn Macau was $324, up from $307 in the year-ago quarter. The property’s occupancy level also improved to 91.3% from 88.6% in the prior-year quarter. Thus, revenue per available room (REVPAR) also spiked 8.6% to $296.

Non-gaming revenues at Wynn Macau perked up 12.9% to $106.3 million from the prior-year quarter, aided by solid performance across all non-casino segments. Including Encore, Wynn Resorts currently boasts 501 tables (289 VIP tables, 201 mass market tables and 11 poker tables) and 924 slot machines in Macau.

Las Vegas Operations

Wynn Resorts’ revenue from Las Vegas operations decreased 8.1% year over year to $362.8 million as net casino revenue fell 18.8% from the prior-year period to $157.7 million. However, gross non-casino revenue crept up 1.3% year over year to $252.3 million, buoyed by improved revenues from all non-gaming segments.

During the quarter, Wynn recorded a 0.7% year-over-year decline in room revenues due to increased number of rooms available for sale as compared to year-ago period. Average daily rate (ADR) rose 6.4% to $255, but occupancy slipped 9.8% to 79.3% and REVPAR dropped 4% to $202.

Balance Sheet

At the end of the quarter, Wynn Resorts’ total cash balance was $1.9 billion. Total debt outstanding was $5.5 billion, including obligations of approximately $3.1 billion for Wynn Las Vegas, $440.0 million for Wynn Macau and remaining for the company.

Our Take

The company reported lower-than-expected first quarter results as business at Las Vegas suffered. Based on the first quarter results, the share price of the company also tumbled 1.7% from the closing price of $127.40 on May 4, 2012. Moreover, competitive environment at both Macau and Las Vegas is heating up. The company faces stiff competition from peers like Las Vegas Sands Corp. (LVS - Analyst Report) and MGM Resorts International (MGM - Analyst Report).

However, we remain encouraged by the company’s healthy balance sheet, relatively low capital requirements and ability to execute in a difficult operating environment. With strong momentum in Macau, we expect the company’s earnings to grow going forward. Additionally, Wynn Resorts’ has started working on the budget and project scope for the sole Cotai project in the pipeline that is further expected to boost its market share in Macau.

Accordingly, we have a Zacks #3 Rank (short-term Hold rating) on the shares. We also reiterate our long-term Neutral recommendation.

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