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Howard Stutz

No surprise: Pinnacle reports loss of $5 million for quarter

3 March 2007

LAS VEGAS, Nevada -- In January, Pinnacle Entertainment warned investors that several factors would affect the company's fourth-quarter earnings.

So it wasn't a surprise Thursday when the Las Vegas-based casino operator reported a net loss of $5 million or 10 cents a share during the three-month period that ended Dec. 31. A year ago, Pinnacle had a net income of $7.5 million or earnings of 17 cents per share. Gaming analysts polled by Thomson First Call expected the company to earn 12 cents per share in the quarter.

The company attributed the loss partly to costs associated with projects under development or under construction. Also, the results at Pinnacle's Boomtown New Orleans, which surged after Hurricane Katrina destroyed much of the Gulf Coast casino industry in August 2005, have receded to historical levels.

"While results were below our expectations, we think they mostly represent normalization at some properties along the Gulf Coast and some temporary promotional expenses at (Pinnacle's casino in Indiana)," Bear Stearns gaming analyst Joe Greff said in a note to investors. "We think investor expectations were relatively low going into these results."

Quarterly revenue fell 6.3 percent to $212.7 million from $227 million.

For all of 2006, Pinnacle said its revenues were $912.4 million, a 36.5 percent increases compared with $668.5 million in 2005. The company's net income in 2006 was $76.9 million, or $1.56 a share, compared with $6.1 million or 14 cents per share in a year ago.

Pinnacle capped 2006 by completing plans and land acquisitions for a slew of development activities that will allow for company expansion well into 2010, including two casinos in St. Louis, a second hotel-casino in Lake Charles, La., and an planned resort in Atlantic City.

"Overall, Pinnacle's fourth quarter came in below our expectations but the company did not issue specific guidance," Deutsche Bank gaming analyst Elizabeth McNellis said in a note to investors. "We anticipate that 2007 will remain a transition year, and investors should focus on the company's expansive growth pipeline."

In its earnings release, Pinnacle said the budget for Lumiere Place, a riverboat casino and hotel complex under construction in downtown St. Louis, could jump from $430 million to between $475 million to $495 million due to increases in the scope of the project and rising construction costs. The development is expected to open by year's end.

Pinnacle has also planned expansions at five of its major casinos. The company expects to fund its development costs through a recently completed stock offering in January that raised $353 million and a newly increased credit facility that is now $1 billion.

L'Auberge du Lac in Lake Charles continued to be the company's flagship property, generating revenues of $312.3 million in 2006, its first full year of operation. In 2005, when L'Auberge was open for just over seven months, L'Auberge had revenues of $148.4 million.

Boomtown New Orleans had revenue of $40 million in the fourth quarter, which were off from $65 million in the same period a year ago when it was one of few casinos to remain open in New Orleans and the Gulf Coast after Hurricane Katrina. In the past year, several casinos in Biloxi, Miss., have reopened, cutting into Boomtown's customer base.

Posthurricane business was also cited as Boomtown New Orleans reported revenues of $201.5 million in 2006, compared with $143.1 million in 2005.

"L'Auberge came into its own, generating strong business levels and surpassing our expectations for performance," Pinnacle Chairman Dan Lee said. "Boomtown New Orleans also performed exceptionally well in 2006 and we believe it will remain above prehurricane business levels for the foreseeable future, despite the reopening of regional competitors."

Analysts didn't expect Pinnacle's shares to be overly affected by Thursday's news because the company had already softened investors' earnings expectations.

Pinnacle closed at $31.90 in trading on the New York Stock Exchange, down 40 cents or 1.24 percent.

"We take a favorable view of Pinnacle based on our faith and belief in management, the quality of the company's assets and the pipeline of new projects and initiatives, which we believe will remake Pinnacle as one of the larger industry players," Morgan Joseph gaming analyst Adam Steinberg said in a note to investors earlier in February.