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MGM Misses on Sluggish U.S. Biz

LVS MGM

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MGM Resorts International’s (MGM - Analyst Report) third quarter 2012 adjusted loss of 23 cents per share deteriorated from the Zacks Consensus Estimate of a loss of 16 cents per share. Loss per share was also wider than the prior-year quarter’s loss of 14 cents per share.

However, on GAAP basis, MGM Resorts posted net loss of 37 cents per share compared with net loss of 25 cents per share in the prior-year quarter.

Total revenue nudged up 0.9% year over year to $2,255.0 million but fell short of the Zacks Consensus Estimate of $2,257.0 million. Total revenue reflected growth in revenue of MGM China revenue partially offset by decline in domestic revenue.

MGM China generated net revenues of $665.0 million, up 7.0% year over year. A solid 10% year-over-year increase in the main floor table games and a whopping 37% gain in slots led to the upside in MGM China.

Net revenues related to wholly-owned domestic resorts fell 2% to $1.5 billion. Similar to the prior quarter, CityCenter continued to perform better in the third quarter as well, with net revenue from resort operations growing 3.0% year over year to $263.0 million.

Inside the Headline Numbers

Consolidated casino revenue grew 4% driven by a 7% increase at MGM China and a 2% rise at the company's wholly-owned domestic resorts. The overall table games hold percentage at casinos of wholly-owned domestic resorts was 20.4%, higher than the year-ago level of 19.5%. Revenues from slots inched up 1% in the quarter. Table games hold at the Bellagio was substantially lower than the normal level, compensated by the performance at other Las Vegas Strip resorts.

Room revenue declined 3.0% primarily attributable to a 2.0% dip in RevPAR (revenue per available room) in the Las Vegas Strip properties. A lower occupancy rate combined with flat average daily rate led to the decline in RevPAR at these resorts.

Operating income for the wholly-owned domestic resorts in the third quarter of 2012 was $195.0 million, up 50% year over year. MGM Resorts reported total operating income of $137.4 million compared with $112.6 million in the year-ago quarter.

Liquidity

At quarter end, MGM Resorts’ total cash balance was $2.44 billion. Long-term debt outstanding was $13.8 billion.

Our Take

The key takeaways from MGM’s third quarter earnings results are a slowdown in the company’s U.S. business, strong revenue generation at MGM China and an improving trend at CityCenter.

The company’s convention bookings for 2013 and 2014 appear strong. MGM also remains hopeful about its progress in China with the official signing of the land concession contract at Cotai. Hence, we believe that MGM Resorts is ideally positioned to take advantage of both domestic and international opportunities and is executing well on its business strategy.  

However, a huge portion of debt in its balance sheet remains a cause of concern. The company which competes with Las Vegas Sands Corp. (LVS - Analyst Report) currently holds a Zacks #3 Rank (short-term Hold rating). Our long-term recommendation remains ‘Neutral’.

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