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Best of Liz Benston

Gaming Guru

Liz Benston

Boyd Profits Soar

10 February 2005

LAS VEGAS -- Shares of Boyd Gaming Corp. rose more than 9 percent in early trading today as the company more than doubled its fourth-quarter profit and analysts said the company's Las Vegas casinos and Borgata resort in Atlantic City performed better than expected.

The company on Wednesday reported a 224 percent increase in fourth quarter profit to $40 million compared with $12.3 million in the 2003 fourth quarter.

On a per share basis, earnings were 45 cents compared with 19 cents in the fourth quarter of 2003.

Boyd's acquisition of the Coast Casinos Inc. locals franchise in Las Vegas in July boosted results, but the company executives said the Coast properties on the whole performed better under Boyd than they had when they were owned by Coast.

Boyd's other Las Vegas casinos, including the Stardust, three downtown casinos and its Sam's Town casino on Boulder Highway, also lifted results, executives said.

"The Las Vegas locals market is firing on all cylinders with growing demand and limited supply growth, with our company's excellent properties enjoying a significant share in that strong market," Boyd Chairman and Chief Executive Bill Boyd said in a statement.

Analysts applauded the company's performance today.

"We believe management has successfully taken this company to a new level and has made Boyd into one of the strongest gaming companies in the industry," Jefferies & Co. stock analyst Larry Klatzkin said in a research note as he upgraded Boyd shares to a "buy" from a "hold."

"We believe this is just the beginning."

With the acquisition of Coast, Boyd now generates 40 percent of its operating cash flow from the Las Vegas locals market, possibly one of the best in the country, while Borgata is "light years ahead of the rest of the market," Susquehanna Financial Group stock analyst Eric Hausler wrote in a separate report.

"Boyd is uniquely positioned in gaming for several years of outsized growth," which will be helped by the South Coast property and the redevelopment potential of the Stardust, Hausler said.

Boyd Chief Financial Officer Ellis Landau compared the company's performance to that of rival locals operator Station Casinos Inc., which has reported recurring earnings increases based on the strength of the Las Vegas economy, including job and housing growth.

"The market is strong but our properties are also being run well," Landau said after the conference call. The company's earnings growth among its locals properties was greater than Station Casinos' in the fourth quarter, a sign that the properties are being run efficiently as well, he said.

Locally, the company has begun to assemble a team of experts to create a master plan for redeveloping its Stardust property on the Strip, which sits on 63 acres. The company also is on track to open its upcoming South Coast resort south of the Strip next year, officials said.

Excluding certain non-recurring events such as acquisition expenses, a consulting termination fee and gain on the sale of certain assets, Boyd Gaming reported adjusted earnings of 50 cents, beating analysts' expectations of 37 cents per share. That compares to adjusted earnings of 19 cents a year ago.

Revenue rose 75 percent to $539.6 million.

Earnings before interest, taxes, depreciation and amortization -- a key indicator of casino performance -- rose 122 percent to $149 million.

By that measure, the Coast Casinos properties reported earnings that were 41 percent higher in the fourth quarter than the prior year's quarter. The Stardust was up 90 percent, the downtown casinos rose 5.3 percent and the Boulder Strip properties rose 41 percent from the 2003 quarter.

The company's Borgata resort reported a 142 percent increase in operating income in the fourth quarter. The property, which is jointly owned with MGM Mirage, reported its first full year of operations. Gaming revenue of $638 million in 2004 was the second best in Atlantic City and its table game revenue topped the market. Slot revenue was second in the market.

In October Boyd announced plans to build a second hotel tower at the Borgata. The project, which hasn't yet been priced, is expected to open in the fourth quarter of 2007 with 800 rooms and other amenities. The property is proceeding with a previously-announced casino expansion that will add 36 table games, 600 slots, 85 poker tables and three restaurants from signature chefs including Bobby Flay, Michael Mina and Wolfgang Puck, by the second quarter of next year.

For the year, Boyd Gaming profit rose 155 percent to $104.6 million compared with 2003. Revenue in 2004 rose 38 percent to $1.73 billion.

Boyd President Don Snyder, who will retire from the company next month, bid a farewell to investors and analysts on the conference call.

Snyder said Boyd has grown into a multi-faceted company with its best-ever growth prospects and a management team that has become "stronger, broader and deeper."

"We may have had some frustrations in the early years when it didn't seem that shareholder value was created as quickly as we thought we deserved but we stayed the course and to great advantage," he said. "The company you see today is very much the company we envisioned and probably more so when we started this process several years ago."

Snyder also praised Bill Boyd's "entrepreneurial spirit" and said he had mixed feelings about retirement.

He said he was "feeling good about how far the company has come but with some regret about not being here to participate directly in the real and exciting growth this company will have in the years ahead."