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Best of Liz Benston

Gaming Guru

Liz Benston
 

Analysis: Las Vegas Sands Profit Declines in First Quarter

3 May 2005

The owner of the Venetian resort in Las Vegas reported an 86 percent decline in first-quarter profit largely because of a loss related to debt refinancing, but it still beat analysts' expectations for the quarter on strong business in Las Vegas.

Las Vegas Sands Corp. posted a profit of $7.1 million, or 2 cents per share, compared with profit of $49.9 million, or 15 cents per share, for the first quarter of 2004.

The company's shares fell 4 percent to $36.80 in early trading today.

First-quarter results included a loss of $132.8 million on the early retirement of debt and $4.9 million in development expenses as well as a $3.6 million charitable contribution to the Solomon R. Guggenheim Museum.

Excluding several one-time charges unrelated to operating performance, profit rose 155 percent to $103.1 million. On a per share basis, the company earned 29 cents compared with 12 cents a year ago. Analysts expected the company to earn 25 cents per share.

Revenue minus promotional expenses rose 69 percent to $403.8 million, helped by the May 2004 opening of the Sands Macau casino in China.

Earnings before interest, taxes, depreciation and amortization -- a key indicator of casino performance -- rose 50 percent to $146.5 million.

At the Venetian resort, casino revenue was flat at $97.4 million but hotel rates rose 3 percent to $243 per night.

Table game volume rose 19 percent to an all-time record of $309.1 million and slot machine volume rose 5 percent to $504.4 million.

Hotel revenue was flat at $85.4 million and occupancy fell 1 percentage point to 97.8 percent.

At the Sands Macau, casino revenue was $171 million in the first quarter.

Slot volume at Sands Macau was $138.6 million, VIP table game volume was $855.7 million and non-VIP table volume was $855.4 million.

Analysts said the Venetian did better than expected but that performance in Macau, given that market's growth trends, was weaker than anticipated.

The Venetian "displayed the strength we have been seeing across Las Vegas, with gaming revenues coming in 20 percent better than expected and solid nongaming revenues, particularly in the retail and other segment," Goldman Sachs stock analyst Steven Kent said in a research note to investors.

In Macau, profit margins have declined somewhat as the company has courted high rollers, Deutsche Bank stock analyst Marc Falcone said in a separate research note.

"We believe margins could continue to contract in Macau as the company pushes more aggressively into the high end market but will be offset by higher volumes from increased VIP play," Falcone said.

Banc of America Securities stock analyst J. Cogan, in a separate report, said Sands Macau casino revenue was flat sequentially even as the company opened a new VIP gambling area in February. Cogan estimates the casino has already captured market share of about 40 percent of mass-market table play and about 2 percent of VIP table play.

This year will likely be a "transition year" in Macau given a lack of new competitive supply until mid-2006, Cogan wrote. Growth should re-accelerate in the third quarter of next year, he said. The entire Macau market experienced a 4 percent sequential decline in gaming revenue in the first quarter, he said.

During the quarter, Las Vegas Sands closed a debt balance of $1.6 billion, issued $250 million in bonds and retired $843.6 million in mortgage notes. The moves are expected to lower the company's interest expenses by about $70 million per year and "result in greater financial flexibility," Chief Financial Officer Scott Henry said in a statement.

"This is particularly important as we execute our current development plans in Las Vegas and Macau and evaluate additional opportunities in both new and existing markets," he said.