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Chris Jones

Analysts Not Impressed by MGM Mirage Results

21 October 2004

LAS VEGAS -- A record quarter and continued optimism for the months to come couldn't calm Wall Street's jitters surrounding MGM Mirage, which saw its stock dip in heavy trading following Wednesday's release of third-quarter financial results.

The Las Vegas-based gaming giant enjoyed record earnings during the three-month period ended Sept. 30, when its $1.04 billion in net revenue was more than 6 percent better than last year's $977 million. Adjusted earnings per share rose to 57 cents, up 68 percent from 34 cents a year ago, and net income nearly tripled from $47.2 million last year to $126.9 million.

Still, investors and analysts expressed mild disappointment with the company's results, which quickly drove down the company's stock value. Shares of MGM Mirage closed Wednesday's trading session at $52.57, down $2.48, or 4.5 percent.

"(Wall) Street will probably be disappointed initially after several consecutive quarters of blow-out earnings," Bear, Stearns & Co. gaming analyst Mark Abramson wrote in his Wednesday guidance to investors. Separately, UBS Investment Research analyst Robin Farley called the returns "an underlying miss" based in part upon earnings that were somewhat padded by the increased collection of past bad debts.

"Roughly 7 cents of that (57-cent earnings per share) came from greater collection efforts and lower bad debt provisions, in other words earnings that analytically belong to prior quarters," Farley wrote Wednesday, adding cash flow at The Mirage, Bellagio and MGM Grand Detroit were each less than she expected.

Both Bear, Stearns and UBS have recently performed investment banking services for MGM Mirage, the companies disclosed.

Despite such reactions, MGM Mirage Chairman and Chief Executive Officer Terry Lanni said his company had many reasons to be enthusiastic, including increased property-level cash flow of $348 billion, a 20 percent gain, powered by increased spending at its Las Vegas resorts.

"Trends continue to show positive momentum into the fourth quarter, and we believe, well throughout 2005," Lanni said.

With an eye toward 2005, when Wynn Las Vegas' April debut is expected to jump-start an already strong local travel industry, Lanni said MGM Mirage has spent heavily this year on capital improvements, including $173 million in the third quarter. Those efforts have already enticed customers to spend more time and money at the company's properties.

"The customers who are with us are staying within our resort family, (which results in) more and more spending ... in our newer dining and entertainment venues," said Lanni, who cited third-quarter newcomers Shibuya, a Japanese restaurant at MGM Grand, and the Tangerine nightclub at Treasure Island.

Lanni said MGM Mirage's $7.9 billion buyout of Mandalay Resort Group remains on track to close in next year's first quarter.

"We believe that's clearly a platform for future growth," Lanni said, adding the companies have decided to sell Mandalay's interests in Detroit's MotorCity Casino.

Jim Murren, MGM Mirage president, chief financial officer and treasurer, said Wednesday the company's lenders have agreed to increase its borrowing ability to $7 billion, enough to finance the Mandalay deal.

Concerning foreign markets, MGM Mirage remains optimistic gaming expansion will occur in the United Kingdom, where the company owns 25 percent of the Triangle Casino in Bristol, England.

Lanni also said MGM Mirage will contribute $280 million to a previously announced joint-venture partnership in Macau with Pansy Ho, managing director of Hong Kong-based Shun Tak Holdings. Pending regulatory approval, the partners hope their MGM Grand-themed project will open in Asia in early 2007.

Analysts Not Impressed by MGM Mirage Results is republished from