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Howard Stutz

Boyd profits exceed forecast

21 February 2007

LAS VEGAS, Nevada -- Gaming analysts didn't have high expectations going into Boyd Gaming Corp.'s fourth-quarter earnings announcement Tuesday. Most thought business at the company's casinos catering toward Las Vegas locals had been hurt by new competition.

But with a little help from a $36 million insurance payment related to hurricane damage claims at its Louisiana racetrack casino and improved results at its Las Vegas properties, Boyd Gaming beat back those dour predictions.

The company said Tuesday its net income for the quarter that ended Dec. 31 was $83 million, or 63 cents per share, up from $35.7 million, or 28 cents a share, a year ago. Analysts polled by Thomson First Call had predicted the company would earn 39 cents per share in the quarter.

"At the end of the day, we created a business plan for the company and that's what we're executing on," Boyd Gaming President Keith Smith said following a conference call with analysts and investors to discuss the company's results. "Not everything goes right 100 percent of the time," Smith said. "We look at what's not working and change it out. But we've been pretty successful."

The company's earnings reflected several changes in its corporate landscape in 2006.

The Stardust was closed in November to make way for the $4.4 billion Echelon Place development, which the company said Tuesday had increased in cost by $400 million. Also, the swap of the Barbary Coast to Harrah's Entertainment for an additional 24 acres that will be added to the Echelon site is expected to be completed next week.

Meanwhile, Boyd Gaming sold its South Coast casino but also opened expansions at its casinos in Indiana and Atlantic City during the year.

Boyd Gaming's quarterly revenue fell 4.2 percent to $520.8 million from $543.9 million.

For all of 2006, Boyd Gaming reported net revenues of $2.19 billion.

Prudential Equity Group gaming analyst Joel Simkins said Boyd Gaming's quarterly results finished above everyone's expectations.

"(The) margin improvement in the Las Vegas locals segment was better than expected," Simkins said in a note to investors. "We are impressed with this quick turnaround in profitability."

In the locals market, which includes the Coast Casinos properties, Boyd Gaming reported revenues of $217.7 million, a 1.8 percent decrease compared with $221.6 million a year ago. Still, the revenues improved significantly over the third quarter's $199.5 million total, Smith said.

"We have a tighter focus on managing the businesses," Smith said. "We have new marketing programs in place and we're doing a good job of driving traffic into the business."

Deutsche Bank gaming analyst Bill Lerner said three of Boyd's four locals properties posted flat year-over-year results. He speculated the Suncoast was the only one of the company's casinos that had declines, mainly due to increased competition from Station Casinos' Red Rock Resort, which celebrates its anniversary in April.

"We are encouraged by directional improvement in (the) Las Vegas locals (market), and expect continued improved throughout 2007," Lerner said in an investors note.

The company announced earnings right after trading commenced on New York Stock Exchange. Bear Stearns gaming analyst Joe Greff correctly predicted the shares of Boyd Gaming would trade up because of investors' lowered expectations.

Boyd Gaming shares closed Tuesday at $49.08, up $3.10, or 6.74 percent. Almost 6.2 million shares were traded, six times the average daily volume.

During the earnings announcement, Boyd Gaming gave investors a clearer picture of its planned Echelon Place project, which is expected to break ground by this summer and open in the third quarter of 2010. Although the company's costs have increased, the site will grow to 87 acres when the land acquired from Harrah's is added. Echelon President Robert Boughner, who is overseeing the site development, said about 22 acres will be set aside for future plans, which could include an additional hotel-casino.

The Echelon Place site will include 5,000 hotel rooms in five different hotel brands. The planned 300,000-square-foot retail mall and two of the hotel brands, Mondrian and Delano, will be joint ventures involving Boyd Gaming with other companies.

In addition to a 140,000-square-foot casino and 30 different dining, nightlife and entertainment venues, Echelon Place will have 750,000 square feet of meeting space.

Boughner said costs rose because of increasing construction rates and changes in the project's plans from when it was announced more than a year ago.

Boughner said the appearances of the different hotels have changed while the number of expected hotel rooms decreased by 300. However, some of the planned hotel rooms will have multiple bedrooms. Also, the size of the convention and meeting space was reduced to allow the resort to focus on smaller gatherings.

"We determined that our focus would be on the high yield meetings business, rather than the large expositions," Boughner said.