MGM Resorts International MGM posted better-than-expected second quarter 2015 results with earnings and revenues beating the Zacks Consensus Estimate. Performance in Las Vegas and regional resorts improved. However, MGM China continued to remain sluggish due to weakness in Macau, a key operating region of the company.
The company announced a Profit Growth Plan to boost its EBITDA and also declared that it expects an upside in the third quarter. Share price of the company went up approximately 9.6% in response.
Earnings and Revenue Discussion
Earnings of 17 cents (including pre-opening and start-up expenses) beat the Zacks Consensus Estimate of 11 cents by 54.5%. However, it declined 19% year over year. Lower revenues were partially offset by a decline in expenses. Excluding pre-opening and start-up expenses, earnings came in at 19 cents.
Total revenue of $2.39 billion beat the Zacks Consensus Estimate of $2.37 billion by 0.8%. However, it fell 7.6% year over year. The downside reflects a significant decline in revenues from MGM China. The company owns 51% of MGM China Holdings Limited, which owns the MGM Macau resort and casino and is developing a gaming resort in Cotai.
Macau has been sluggish over the past few quarters. The decline is due to the slowdown in Macau gambling growth as a result of high-stake gamblers curtailing spending amid a cooling Chinese economy. The region has struggled owing to the anti-graft corruption drive, which has lowered footfall at the casinos. Also, credit growth concerns, tighter restrictions on visas and a partial smoking ban in casinos have adversely impacted revenues generated from the region.
Gross gaming revenues in Macau declined in double digits in all three months of the quarter.
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.
Adjusted property EBITDA at MGM Resorts was $641 million, down 2.5% year over year due to a decline in revenues.
MGM China
MGM China’s net revenue declined 33% year over year to $557.0 million due to lower revenues from VIP gamblers as well as main floor table games.
Main floor table games revenues fell 23% year over year. VIP table games revenues plunged 43% due to lower year over year VIP table games turnover of 54%. However, hold percentage increased 50 bps year over year to 3.2%.
MGM China adjusted EBITDA fell 37% year over year to $132.0 million.
Domestic Operations
The company owns and operates several properties spread across Las Vegas. Apart from this, it has several assets in Mississippi and Michigan.
Net revenue at wholly-owned domestic resorts was up 4%. Casino revenues from wholly-owned domestic resorts went up 5% owing to a 4% increase in table games volume and a 7% increase in slots volume. Table games hold percentage was 21.4%, up 10 bps year over year. Room revenues increased 6%, primarily attributable to a 6.7% rise in revenue per available room (RevPAR) due to higher average daily rate.
Food and beverage revenues were up 3% attributable to an improvement in the catering business related to higher convention room mix, opening of several new outlets and closed circuit viewing parties for the Mayweather versus Pacquiao fight. Adjusted property EBITDA went up 11% year over year to $458.0 million.
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 grew 0.7% year over year to $322.0 million as an increase in revenues from Resort operations was partially offset by a decline in Residential operations. Revenues at Resort operations went up 2.5% to $311.8 million due to an increase in revenues at all its properties. Meanwhile, revenues at Residential operations declined 35.3% to $10.2 million.
CityCenter’s adjusted EBITDA increased 10.3% year over year to $85.7 million.
Third Quarter Performance to Improve
MGM Resorts expects to see improvement in retail and leisure business in the third quarter and the back half of the year. It expects wholly-owned strip REVPAR growth to be approximately 6% in the third quarter.
Profit Growth Plan to Boost EBITDA
MGM Resorts announced a Profit Growth Plan meant for sustained growth and margin improvement. The plan focuses on improving business process through greater efficiency and lower cost. It is intended to identify areas of opportunity to organically drive revenue growth.
The Profit Growth Plan commenced in Jul 2015 and is expected to benefit adjusted EBITDA by $300 million on an annual basis. The company expects to reap the benefits of the plan in the second half of the year and fully realize its impact by the end of 2017. With this plan, the company expects property EBITDA margin in the 30% range in 2017.
MGM Resorts presently has a Zacks Rank #4 (Sell).
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