Boyd Execs Unfazed by Disappointing Results

by Jeff Simpson

LAS VEGAS -- A $4.1 million loss at the Stardust and disappointing results at its Par-A-Dice riverboat in Illinois hurt Boyd Gaming's third-quarter performance, the Las Vegas-based operator announced Tuesday.

Boyd reported adjusted net earnings of $9.8 million, or 15 cents per share, for the quarter ended Sept. 30, compared with $15.2 million, or 23 cents per share, in last year's quarter.

The company's operating cash flow declined by 8.8 percent, from $39.7 million to $36.2 million.

Revenue increased 1.2 percent to $266.1 million from $263 million.

Increased marketing costs at the Stardust didn't pay off with corresponding revenue gains, and the Par-A-Dice riverboat suffered from Illinois' recent big tax increases, but Boyd Gaming executives predict brighter quarters ahead.

"The third quarter was decidedly mixed, but we're more optimistic as we move into '04," Boyd President Don Snyder said. "Early fourth-quarter results suggest the business is positive and expanding."

The company's Borgata megaresort in Atlantic City, operated by Boyd and jointly owned with MGM Mirage, had a solid quarter, company executives said.

Borgata opened two days after the third quarter began and reported $150 million of net revenue. Borgata gaming revenue in the quarter was $136 million, second in the Atlantic City market only to the much larger Bally's Park Place.

"The opening of Borgata represented a true milestone in the history of our company," Boyd Chairman Bill Boyd said in a statement. "The initial response from customers, employees and the financial community has been most gratifying. In our opening months, we achieved significant market share premiums in slots, table games and poker. Our talented management team is off to a great start, and I am confident that Borgata has a very bright future ahead."

But the company's Stardust didn't perform up to company expectations, Boyd Chief Financial Officer Ellis Landau said.

"We tried some new marketing things during the quarter," Landau said. "It cost us some money, but it didn't bear fruit."

The Stardust lost $4.1 million during the third quarter, about 10 times more than the $412,000 the Strip property lost in the 2002 third quarter.

"We clearly weren't looking for a loss at the Stardust," JP Morgan casino equity analyst Smedes Rose said. "It's a tough market for a 'Tier 3' property. Properties that produce such small cash flow numbers have a relatively small cushion, and small changes in revenue can have a big effect on overall performance."

Snyder said the Stardust's 60-acre site and its redevelopment potential are the property's biggest attributes. He said the company is waiting for the scheduled April 2005 opening of the $2 billion Wynn Las Vegas to make a decision about the site.

"We feel very good about the neighborhood and the opportunities it offers," Snyder said. "We think it's important to wait for Wynn to open to see what to do with our 60 acres."

Rose said Stardust executives justifiably look at the Stardust as a redevelopment opportunity.

"Wynn Las Vegas will drive a lot of business at that end of the Strip," Rose said. "The Fashion Show mall's expansion, the changes at Treasure Island and additional investment at The Venetian make for a lot of activity around the Stardust."

Rose predicted Boyd executives would hold off on Stardust redevelopment plans until mid-2006, until Wynn Las Vegas' impact becomes clear.

Boyd executives said the Illinois tax increases cost the company about $4.3 million in new Par-A-Dice taxes during the quarter, and they also said the boat faces increasingly tough competition from Missouri and Iowa casinos.

The riverboat generated $5.5 million in third-quarter income, down 55.6 percent from the $12.4 million it earned in last year's quarter.

Sam's Town operating cash flow dropped 20.7 percent, to $2.3 million from $2.9 million.

Boyd's downtown Las Vegas properties, Main Street Station, California and the Fremont, generated $3.8 million in cash flow, down 22.4 percent from $4.9 million.

Jokers Wild and the Eldorado, its two Henderson properties, produced cash flow of $379,000, down 56.6 percent from $874,000.

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