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Best of Howard Stutz

Gaming Guru

Howard Stutz

Boyd Gaming Coasts to Profitable Quarter

26 April 2005

For the second straight quarter, results from the four Coast Casinos properties that Boyd Gaming purchased last year helped send the company's earnings to record levels.

But throughout its quarterly conference call with analysts Monday, and in the interviews afterward, Boyd executives were quick to emphasize that results for the company's first quarter of 2005 were widespread.

"All our operating units reported increases, and this certainly shows that we are a diversified company," Boyd Gaming President Keith Smith said. "We certainly have to be considered one of the top three (gaming companies), and this reflects on our experience and our results."

Boyd Gaming reported pretax earnings of $170 million in the quarter, an increase of 111 percent from the $81 million reported in the first quarter a year ago, before the Coast Casinos purchase for $1.3 billion that was completed in July.

The company reported net revenues of $566.9 million in the quarter, an increase of 72 percent compared with $330 million.

Boyd Gaming said its first-quarter net income was $40.1 million, or 45 cents per share, well above the $13.5 million, or 20 cents a share, reported a year earlier. However, the company said its earnings included a charge of $16.4 million, or 18 cents a share, for a change in the way it accounts for intangible assets, such as reducing the value of license rights at its Delta Downs casino in Louisiana.

Smith said the company's central region casinos -- in the south and Midwest -- increased their pretax earnings by 27 percent during the quarter, while the Borgata in Atlantic City grew its operating income 65 percent.

During the quarter, Boyd spent $12 million on its expansion of Delta Downs, $26 million on the expansion of the Blue Chip Casino in Indiana, and $75 million toward the $500 million, 660-room South Coast Casino, which is expected to open in January.

"The beauty of our future is that we control our own growth," Smith said. "We don't have to rely on new opportunities or new jurisdictions. That's not to say that we're not looking at those opportunities should they present themselves."

Boyd Gaming announced earnings after the close of the markets. The company finished the trading day at $51.41, up $2.97, or 6.13 percent.

Coast Casinos had a large impact on the company's earnings, contributing $68.2 million in pretax earnings on revenues of $187.9 million during the quarter.

The company said Coast's first-quarter results were 29 percent higher than a year ago when it was an independent company. The operating unit benefited from the addition of 460 rooms at The Orleans.

"We haven't changed anything materially in the way Coast has operated," Smith said. "They were a real strong operator before and they seem to have benefited from the strong Las Vegas economy and the outstanding growth in the market."

Smith said another Boyd property benefited from the booming Las Vegas tourism market. The Stardust had -- according to the company -- its best quarter in years. Revenues at the Stardust were $40.7 million, up 5.1 percent over $38.8 million a year ago and pretax earnings were $7.1 million, a 30 percent increase from the prior quarter.

"Room rates were up at the Stardust as was occupancy and slot revenue," Smith said.

The 63-acre Stardust site is being master-planned for future expansion, which would begin in 2006.

Boyd Gaming reported pretax earnings of $11.4 million during the quarter at its downtown casinos, a 13.5 percent jump from $10.1 million reported last year. Smith cited an increase of visitation from Hawaii and business brought to downtown by the Fremont Street Experience as reasons for the upswing.

In Atlantic City, the Borgata continued to lead the market. The casino reported net revenues for the quarter of $172 million, a gain of 18 percent compared with $145.9 million last year. Borgata reported pretax earnings for the first quarter of $56.9 million, a 42 percent increase compared with $40.1 million a year ago.

"Borgata was able to dominate the market despite weather conditions in Atlantic City and new competition from the expansion at the Tropicana," Borgata Chief Executive Officer Bob Boughner said. "Offering great experiences with excellent product and service can take most of the seasonality out of what has traditionally been a seasonal market."