Station Casinos Profits Exceed Analysts' Outlook

Are rising gasoline prices and other national economic trends causing Las Vegas consumers to curb their discretionary spending? Not at all, it seems, given Station Casinos' third-quarter earnings.

The casino company, which relies predominantly on leisure dollars from Southern Nevada residents for its profits, Tuesday reported earnings that exceeded all previous estimates by the company and gaming industry watchers.

Station Casinos, which operates 13 large and small Las Vegas Valley casinos and manages an American Indian casino near Sacramento, Calif., said net income rose to $39 million, or 56 cents per share, for the three-month period ended Sept. 30 from $29.1 million, or 43 cents per share, a year earlier.

Adjusted earnings per share, which account for nonrecurring items and development expenses, rose to 63 cents per share from 46 cents a year ago.

Analysts polled by Thomson First Call had estimated Station Casinos would earn 56 cents a share for the quarter.

The company reported $117.8 million in third-quarter cash flow, or earnings before interest, taxes, depreciation and amortization, a 30 percent increase from $90.7 million a year ago. Previously, the company had told analysts and investors it expected cash flow of $112 million in the quarter.

"We didn't have any major announcements, but what we did have was a blowout quarter by all estimates," Station Casinos Chief Financial Officer Glenn Christenson said. "People have been tracking the local economy and there had been some concern. But this shows that the Las Vegas economy is robust."

Revenue rose 13.8 percent to $276.3 million from $242.8 million.

New York-based gaming analysts agreed the earnings bode well for the Las Vegas economy.

"Management noted no changes in consumer behavior," Deutsche Bank gaming analyst Marc Falcone said in a note to investors. "We believe this is important given investor concern over casino visitation relative to rising energy prices. We note that summer revenue trends in Las Vegas locals and other regional markets have shown that consumer spend on gaming is not being impacted."

Goldman Sachs gaming analyst Steven Kent said Station Casinos' performance reflected population growth, job creation and other positive economic activity.

"A month ago, Station Casinos preannounced that third-quarter earnings would be at the top-end of the guidance range, and these results were even better than that," Kent said.

Unlike other major gaming companies such as Harrah's Entertainment, MGM Mirage and Boyd Gaming, Station Casinos' third-quarter earnings weren't affected by the Gulf Coast hurricanes in August and September since the company's only current activity outside of Nevada is in Northern California.

Still, Station Casinos' stock price is affected by its competitors.

"For some reason, the sector has a tendency to trade in a pattern and we're kind of included within that mix," Christenson said. "We've tried to articulate that our business model is different, but our stock frequently trades within the sector."

Station Casinos shares fell $2.74 or 4.13 percent, Tuesday to close at $63.61 on the New York Stock Exchange. More than 1.7 million shares were traded, almost three times average daily volume.

Bear Stearns gaming analyst Joe Greff saw Tuesday's share-price decline as an opportunity for investors.

"We continue to remain bullish on Station Casinos and view today's, and the overall recent, pullback as an enhanced buying opportunity given the strength and resilience of the Las Vegas locals market and an attractive development pipeline," Greff said.

Christenson said Station Casinos has more than $1.2 billion in development occurring around the Las Vegas Valley, including expansion projects at Green Valley Ranch, Santa Fe Station and Fiesta Henderson. The bulk of the company's capital improvement dollars are being spent on the $925 million Red Rock Resort, which is expected to open at the end of March.

The company also has development opportunities in Reno with three projects in planning.

Christenson said any developments with the company's four prospective American Indian casino locations are well off in the future due to federal and state government approvals and legal challenges.

Gaming Guru

Station Casinos Profits Exceed Analysts' Outlook