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Rod Smith

Casino Earnings: A Scorcher for Station

20 October 2004

Giant locals gaming operator Station Casinos on Tuesday posted record earnings for the third quarter with net income of $29.1 million, or 43 cents per share, an increase of 47 percent compared with the prior year's $19.8 million, or 32 cents per share.

Goldman Sachs analyst Steve Kent said in an investor advisory the quarter's results confirm the strength of the locals market and demonstrate that the demand for gambling in Las Vegas extends beyond the Strip.

Susquehanna Financial Group gaming analyst Eric Hausler said the company also benefited from "the very tame supply environment" in Las Vegas, referring to legislation adopted in 1997 that limited areas in the Las Vegas Valley where hotel-casinos could be built.

"The Las Vegas locals market continues to grow at a very healthy rate and the new supply coming online is paltry for the next few quarters," he said.

Station Casinos also raised its annual dividend by 20 percent to 84 cents a share, which implies a yield of 1.7 percent. Kent said the dividend move was unexpected, considering the company is building Red Rock Station, which he said is a major development project.

He said the dividend increase demonstrates the company's likely cash flow over the next several quarters and management's confidence in a strong business outlook.

Station Casinos Chief Financial Officer Glenn Christenson said the continued strength of the locals economy, despite concerns raised by some analysts, and continued population growth in Las Vegas explain the 11th consecutive quarter of year-over-year growth.

He also suggested growth prospects are positive enough that Station may decide to accelerate local development projects.

Revenue for the company increased to $242.9 million in the 2004 second quarter, up 11 percent from from $218.7 million a year earlier. Earnings before interest, taxes, depreciation and amortization in the just-ended quarter were $90.7 million, up 19 percent from $76.4 million in the third quarter of 2003.

Earnings before interest, taxes, depreciation and amortization, or cash flow, out of Las Vegas operations was $74.8 million in the third quarter, up 27 percent from $58.9 million in the same period of 2003.

Cash flow, a key measure of profitability, out of Las Vegas operations accounted for 83 percent of the company's total cash flow and the increase in cash flow out of Las Vegas operations accounted for 90 percent of the company's total increase.

Deutsche Banc analyst Marc Falcone said the third-quarter results once again confirm his confidence in Station Casinos' strategy of focusing on and dominating the Las Vegas locals market.

In a conference call with Wall Street analysts, Station Casinos executives increased projections for fourth-quarter growth to 10 percent to 12 percent compared with the fourth quarter a year earlier, up from their previous growth estimates of 8 percent to 10 percent for the fourth quarter.

Falcone said the higher growth projections, the increased dividend and claims the company is in line for added casino management contracts with American Indian tribes in California bode well for 2005 and for the company's stock performance.

At Susquehanna Financial, Hausler said the expansion at Santa Fe Station, the opening of Red Rock Station and the addition of 800 slots at Thunder Valley near Sacramento, Calif., in the third quarter should continue to push earnings upward throughout 2005.

Station President Lorenzo Fertitta said in the conference call that record energy prices should not negatively affect Las Vegas' visitor volume or financial performance.

"It's something we don't have to worry about because of the environment and temperatures," he said. "There may be a downside (from the cost of transportation), but the upside (from more people wanting to come here for the warm climate) more than compensates for it."

Station shares closed Tuesday at $50.70, up $2.53, or 5.25 percent, on 1.5 million shares, four times normal trading volume.

Casino Earnings: A Scorcher for Station is republished from