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LAS VEGAS, Nevada -- MGM Mirage wowed investors Thursday with third-quarter earnings that surpassed most expectations.
And company executives believe the results could foreshadow the future.
Fueled by its collection of upscale Strip casinos, MGM Mirage said the company's net income rose $156.3 million in the quarter ended Sept. 30, a 68 percent increase from $93.2 million a year ago.
The profits translated into an earnings per share of 54 cents, a 74 percent increase compared with 31 cents per share earned in the same quarter last year. Analysts polled by Thomson First Call had predicted MGM Mirage would earn 41 cents a share.
"Maybe the Street was a little surprised, but the easiest way for us to describe the results is to say we're pleased with the performances at several of our properties," MGM Mirage Chairman Terry Lanni said following a conference call to discuss the results.
Companywide revenue rose 5 percent to $1.9 billion from $1.81 billion.
MGM Mirage's 10 Strip resorts were the company's primary source of earnings, growing revenues 6.2 percent in the quarter to $1.54 billion, compared with $1.45 billion a year ago. On the Strip, Bellagio, MGM Grand, Mandalay Bay and Treasure Island recorded double-digit increases in revenues from slot machines, while baccarat volume at the company's high-end properties was up 22 percent.
Gaming analysts also pointed to a strong quarter at The Mirage, which benefited from the openings of new restaurants and a new Cirque du Soleil show based on the music of the Beatles.
"Overall, (MGM Mirage had) a strong quarter on the Strip," Bear Stearns gaming analyst Joe Greff said.
But even with construction well under way at the $7 billion Project CityCenter on 66 acres between the Monte Carlo and Bellagio, Lanni said the company's future goes far beyond the Strip.
MGM Mirage expects to open the $975 million MGM Grand Macau in China late next year and is building a permanent casino for the MGM Grand Detroit, which will cost $765 million. But there are other projects. The company also has 71 acres in Atlantic City near the Borgata which it intends to develop while it is exploring other casino opportunities in China and the potential of Las Vegas-style gaming in Japan.
Even on the Strip other than CityCenter, MGM Mirage has growth potential. Lanni said a recreational vehicle park just north of Circus Circus, along with the casino, could be redeveloped as growth heads northward.
"We have some tremendous opportunities over the next few years to expand," Lanni said. "The third quarter once again demonstrated our company's ability to grow organically and generate meaningful increases in cash flow."
Stifel, Nicolaus gaming analyst Rod Petrik agreed with Lanni, saying investors may start viewing the company in a different light.
"We believe MGM Mirage shares are compelling due to its heavy Las Vegas exposure, strong pipeline of growth opportunities, and our belief that the company will continue to diversify its revenue stream and look more like an entertainment and real estate company," Petrik said in a note to investors.
Earnings before interest, taxes and depreciation and amortization, also known as cash flow, for MGM Mirage was $486.6 million at the company's Strip casinos during the quarter. That figure comprised more than 76 percent of the company's overall cash flow during the three month period.
MGM Mirage also found another revenue source on the Strip through the sales of condominium-hotel units at its Signature development behind MGM Grand. The company said recorded $27 million in profit from the sales and expects to collect another $70 million to $80 million on sales over the next two quarters.
Lanni said those figures bode well for the company's plans to sell some 2,700 residences at Project CityCenter starting in January. He said despite the demise of other condo projects in Las Vegas and softer market for sales, the CityCenter high-rises have one distinct advantage, he said, the backing of MGM Mirage.
"People know that when we announce we're going to do something, we do it," Lanni said.
MGM Mirage cited a huge lift from Beau Rivage, the company's casino in Biloxi, Miss., that reopened Aug. 29, one year after it suffered heavy damages from Hurricane Katrina.
The casino, operating just 33 days in the quarter, had revenues of $83 million, almost matching the $84.5 million in revenues reported during the two months the casino was opened during the 2005 third quarter prior to the hurricane.
Beau Rivage contributed $16 million in cash flow to MGM Mirage in the quarter, compared with $12 million a year ago.
"The numbers (from Beau Rivage) are staggering," Lanni said. "While there are less properties operating there now than before the hurricane, a number of our competitors have facilities that really aren't permanent casinos."
Lanni said the recent announcements that MGM Mirage would sell its two casinos in Laughlin and its three Primm resorts doesn't mean other parts of the company are for sale. He said in both instances, MGM Mirage was approached by potential buyers willing to pay more than 9 times the casinos' cash flow.
The Laughlin casinos are being purchased for $200 million by a partnership that includes Anthony Marnell III and Sher Gaming. Herbst Gaming is buying the Primm casinos for $400 million.
MGM Mirage also used Thursday's earnings to tout its financial strength, which includes a credit line of $7 billion that could increase to $8 billion.
"With the amended credit facility and our resorts' success in generating cash flows, we will continue to have financial flexibility for our growth initiatives while still being able to re-invest in our market leading resorts," MGM Mirage President Jim Murren said.
MGM Mirage shares rose 84 cents, or 1.96 percent, Thursday to close at $43.65 on the New York Stock Exchange.
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