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Casino Earnings: Giant's Profits Slide 47 Percent

MGM Mirage stock took a temporary hit Thursday morning after company executives announced their decision not to begin offering regular dividends to shareholders.

The dividend announcement came the same day MGM Mirage reported a 47 percent decline in second-quarter net income, $53.8 million compared with $101.9 million in the 2002 second quarter.

MGM Mirage stock plummeted by almost $2 per share in the first minutes after MGM Mirage Chairman Terry Lanni made the announcement during a conference call with investors.

"There may have been an expectation (by some investors) that they'd announce a dividend," JP Morgan casino analyst Smedes Rose explained, noting that his investment bank correctly predicted the MGM Mirage decision.

The New York Stock Exchange responded to the sudden drop in MGM Mirage shares by halting trading in the stock for about two hours.

Shares rebounded during the last three hours of trading, closing at $33.88, down 44 cents, or 1.3 percent.

Despite MGM Mirage's 47 percent earnings drop, its second quarter beat analyst expectations, with its 45 cents earnings per share above the consensus Wall Street estimate of 25 cents to 35 cents per share, but below the 55 cents reported in last year's quarter.

Companywide revenue was $985.3 million, up 1.5 percent. Cash flow, a widely accepted indicator of casino industry earnings, was $310.7 million, down from $327.1 million.

Company executives said the war in Iraq, uneven economic conditions and a choppy high-roller market continued to hurt the company in the quarter.

Prospects for the third quarter that began July 1 are also difficult to predict, MGM Mirage bosses said, with room rates on the Strip looking good.

"We have the best assets (on the Strip)," MGM Mirage Chairman Terry Lanni said. "If the high-end customers step up their play, as we expect they will," MGM Mirage properties will be best poised to capitalize.

JP Morgan casino analyst Smedes Rose said: "Things on the margin are improving in Las Vegas."

Lanni and MGM Grand Resorts CEO John Redmond said they were very happy about the company's 50 percent stake in the Boyd Gaming-operated Borgata in Atlantic City.

They declined to disclose the new megaresort's early numbers, but their comments suggested the property enjoyed a strong opening two weeks ago.

"We're extremely encouraged and happy with the performance," was Redmond's take.

Lanni said his company has offered a one-time dividend in the past, and the board of directors regularly discusses whether to offer dividends, noting that the cash payments to shareholders are obviously more appealing now that federal tax law has been changed.

"The board has determined that it's not prepared at this time to offer dividends," Lanni said, instead committing to continue using free cash flow to repurchase company shares, pay down debt and to "invest in our proven resorts."

"Right now they've got bigger fish to fry," Rose said. "We wouldn't be surprised if they (offer a dividend) at some point in the future."

Among MGM Mirage properties, notable second-quarter performances were reported by:

. Bellagio, posting $66.3 million in cash flow, down 6.6 percent from $71 million.

. MGM Grand Las Vegas, reporting $28.3 million in cash flow, down 21 percent from $35.9 million.

. The Mirage, posting $25.1 million after taking a $5 million charge for a fine paid to Nevada gaming regulators for property executives failing to timely file thousands of currency transaction reports.

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