Lady luck frowns on Rio, MGM Grand
By Sarah Tippit
LOS ANGELES (Reuters) - It's a Las Vegas truism that the house always wins, but right now a pair of casino operators are winning a little bit less than they would like.
Rio Hotel & Casino Inc. said on Monday it would report lower second-quarter earnings because of a lower hold percentage -- the share of dollars wagered that the casino keeps -- while analysts said MGM Grand Hotel was likely to follow suit.
Analysts said, however, that it wasn't a cause for alarm, but simply a streak of bad luck for the casinos.
"Games of chance have a significant statistical backdrop, and while the win percentage might be defying statistical gravity at the moment, over time the house wins," said Jeffrey Logsdon, an analyst with Cruttenden Roth Inc.
"They've played unlucky," said Jason Ader of Bear Stearns. "Shareholders must learn to expect those losses. There will also be a period when gains are extraordinary."
MGM Grand holdings include the MGM Grand hotel and casino and half share of the adjacent New York New York property that it owns with Primadonna Resorts Inc. Rio owns a single property of the same name and is considered a prime takeover target.
In the first quarter, MGM Grand reported sharply lower-than-expected earnings due to an unusual drop in gaming revenue, and analysts said that trend has continued.
MGM Grand would not comment on results for the second quarter, but Wall Street sources gave estimates that ranged from 34 cents per share to 40 cents per share vs. the First Call consensus analyst estimate of 46 cents.
In last year's second quarter, MGM Grand reported net income of $33 million, or 56 cents a share.
"We don't believe anything is structurally wrong with our business to require us to lower our hold expectations in the future," MGM Grand's Chief Financial Officer Jim Murren told Reuters in an interview.
"Games are, mathematically, the games and we're confident what we're doing is right for the long term," Murren said.
MGM Grand normally reports a winning percentage in the 20 percent range but in the coming quarter will report a hold percentage in the low teens, industry sources said.
Rio also said its hold percentage was likely to be in the low teens for the second quarter vs. a more usual 20 percent.
Rio said it expected to report second-quarter earnings per share of 10 cents to 15 cents vs. analysts' estimates of 32 cents to 38 cents per share. According to First Call, the consensus Wall Street estimate was 36 cents.
In last year's second quarter Rio earned $6.6 million, or 31 cents a share.
Rio President James Barrett, Jr. said, however, that other financial benchmarks for his company were strong -- visitor count, hotel occupancy and gaming volume.
"The business is here, that's the good news," Barrett said in a statement. "If the hold percentage for the quarter had maintained its historical average level, we would be expecting to meet or exceed analyst estimates."
As for MGM, analysts said its other financial benchmarks are strong. Its revenue per available room was flat over a year ago -- rather than down -- due to a new convention center it opened in March, whereas the rest of the Las Vegas market was seeing decreases, said Robin Farley of Bankers Trust.
"The MGM Grand hotel is holding up extremely well. That's partly driven because of the opening of a new convention center this past March and to a lesser extent some other amenities they have added," Logsdon said.
Analysts said they expected overall Las Vegas profits to trend downward due to too much casino space and too many hotel rooms being built.
"That's going to have negative implications on room pricing and overall revenues in casinos," said Bear Stearns' Ader, adding that the expected Rio and MGM results were not a reflection of this downward trend. |
