MGM Resorts International (MGM) posted a loss in the third quarter of 2014 owing to a weak Macau market. Revenues, however, beat the Zacks Consensus Estimate by a slight margin. Share price of the company rose slightly in the aftermarket trading hours, possibly due to the fact that revenues beat expectations by a slight margin.
After posting profits consistently since the beginning of 2013, MGM Resorts posted a loss of 2 cents per share that compared unfavorably with the Zacks Consensus Estimate of earnings of 6 cents and also the year-ago earnings of 2 cents. The loss was due to a decline in casino revenues in the domestic market and lower number of VIP gamblers in the Macau market.
Macau has been sluggish over the past few quarters. The slowdown can be attributed to the fact that high-stake gamblers are curtailing spending amid a cooling Chinese economy. Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on VIP gamblers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.
Also, a decline in margins owing to higher expenses related to investments in Delano at Mandalay Bay and the Strip frontage at Monte Carlo led to the loss.
Total revenue of $2.49 billion increased 1% year over year and marginally beat the Zacks Consensus Estimate of $2.48 billion. The marginal upside reflects an increase in revenues from mass market gamblers in China.
Adjusted property EBITDA was $570 million, up 2% year over year, as an increase in revenues was partially offset by an increase in expenses.
Domestic Operations
The company owns and operates several properties spread across Las Vegas. Apart from this, the company boasts several assets in Mississippi and Michigan.
Net revenue at the wholly-owned domestic resorts was up 2%. It increased 3% at the Las Vegas Strip owing to an increase in room revenues.
Casino revenues from wholly-owned domestic resorts declined 4% due to a 170 basis points (bps) decline in table games hold percentage and a slight decline in slots revenues. Room revenues increased 5%, primarily attributable to a 6% rise in revenue per available room (RevPAR) at Las Vegas Strip properties due to higher average daily rate. RevPAR growth exceeded management’s expectation of 5% growth. The company expects RevPAR growth of 5% for the fourth quarter of the year as well.
Food and beverage revenue were up 9% owing to increased convention and banquet business and the opening of several new outlets. Adjusted property EBITDA margin declined 180 basis points due to a decline in table games hold percentage and an increase in certain expenses.
Operating income for the company's wholly-owned domestic resorts increased 2.5% year over year, reflecting year over year increase in revenues partially offset by expenses.
Income from Unconsolidated Affiliates – CityCenter Holdings
MGM’s urban complex CityCenter operates through two segments — Resort and Residential. Under the Resort operations, the company boasts four properties — Aria, Crystals, Vdara and Mandarin Oriental.
Net revenue from CityCenter was up 1% year over year to $297.4 million as growth in revenues at Resort operations was partially offset by a decline in revenues at Residential operations. Revenues at Resort operations were up 4.8% to $280.0 million with a rise in revenues across all its properties while revenues at Residential operations declined 36.3% to $17.0 million.
CityCenter’s adjusted EBITDA fell 6% year over year to $57.6 million.
MGM China
MGM China’s net revenue declined 2% year over year to $798.0 million due to a decline in revenues from VIP gamblers, partially offset by an increase in main floor table games revenues. Main floor table games revenues were up 34% year over year while VIP table games turnover decreased 19%.
MGM Resorts’ operating income was $140.0 million in the quarter, up 22.8% year over year, owing to an increase in Main floor table games revenues.
Our Take
A weak operating environment in Macau resulted in a loss for this casino operator. However, the situation is not expected to improve in the near-term. The imposition of a ban on smoking in casinos as well protests in Hong Kong would further worsen the situation. Other companies that are also bearing the brunt of a weak gambling business in Macau include Las Vegas Sands Corp. (LVS), Wynn Resorts Ltd. (WYNN) and Melco Crown Entertainment Ltd. (MPEL).
Nevertheless, we expect MGM Resorts’ strong brand portfolio, upcoming projects, solid mass market revenues to bode well for the company. MGM Resorts presently has a Zacks Rank #3 (Hold).
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