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Best of Howard Stutz

Gaming Guru

Howard Stutz

Quarterly loss widens for Pinnacle Entertainment

28 February 2008

LAS VEGAS, Nevada -- Pinnacle Entertainment suffered its second straight fourth-quarter earnings loss as development costs for the company's pipeline of casino projects across the country cut into profits.

The Las Vegas-based casino operator said Tuesday it lost $19.2 million, or 32 cents a share, in the quarter ended Dec. 31, compared with a loss of $5 million, or 10 cents a share, a year earlier.

Revenues rose 2.8 percent to $218.6 million from $212.7 million.

For all of 2007, Pinnacle lost $1.4 million, or 2 cents a share, on revenues of $923.7 million.

Pinnacle opened a $507 million hotel-casino in downtown St. Louis in December and is building a second resort in the city's suburbs. Pinnacle also has expansion projects or new hotel-casinos on track for gaming jurisdictions in Louisiana and a multibillion-dollar development in Atlantic City.

"Strategically, we remain focused on reinvesting our shareholders' cash flow into new casino resorts with compelling and innovative designs, tying them together into a national network," Pinnacle Entertainment CEO Dan Lee said. "We continue to cultivate each of the projects in our growth pipeline while carefully monitoring the credit markets."

Lee said the company may have to take a second look at some of its development plans because of the state of the nation's economy. Financing for certain projects may be tougher to obtain, Lee said.

"I've been asked, 'How the hell are you going to build in Atlantic City?'" Lee said on a conference call with analysts and investors. "The answer is if credit markets don't improve, we won't build. We're not going to go broke building in Atlantic City."

Lee said the current disruption in the credit markets has made available capital more costly.

"If interest rates for corporate borrowers such as us do not improve, it may be in our shareholders' best interests to delay such projects," Lee said.

Gaming analysts said the impact on Pinnacle's earnings could also be influenced by a downturn in consumer spending.

"We continue to expect continued downward pressure from the wider economy to especially impact Pinnacle's properties in New Orleans, Bossier City (La.) and Reno in the near term as consumers deal with a challenging economy and declining household wealth," Deutsche Bank gaming analyst Andrew Zarnett said in a comment to investors. "We note that the recently opened Lumiere Place (in St. Louis), coupled with the new hotel at L'Auberge (du Lac in Lake Charles, La.) may somewhat mitigate the decline at other properties."

Bear Stearns gaming analyst Joe Greff said Pinnacle was wise to reconsider some of its expansion plans given the tightening lending markets. He thought the move could signal Pinnacle's willingness to take on joint venture partners in some of its projects.

"We think this would be a distinct positive for the stock as we believe investors would view this favorably, given the liquidity or financing concerns in the market," Greff said.

Last week, Pinnacle said it agreed to settle one of its insurance lawsuits covering damages and lost business the company suffered at its casinos in Biloxi, Miss., and New Orleans following Hurricane Katrina in August 2005. Arch Specialty Insurance Co. agreed to pay Pinnacle roughly $36.8 million before March 17. The company is continuing to pursue two other lawsuits over hurricane-related damage with other insurance carriers.

Pinnacle shares rose $1.31, or 7.94 percent, Tuesday to close at $17.81 on the New York Stock Exchange. More than 3.3 million shares were traded, four times the average daily volume.