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Gaming Guru

Rod Smith

Earnings: A Bright Quarter for Boyd

26 April 2006

Boyd Gaming Corp. marked multiple milestones in the first quarter with record earnings and the consolidation of Coast Casinos into its Las Vegas locals operation.

"(Boyd's performance) shows the resilience of the casino industry despite consumer weaknesses in the rest of the economy," said Matt Jacobs, senior gaming analyst at Majestic Research, a Wall Street firm specializing in developing information for institutional investors.

Brian Gordon, a partner in Las Vegas-based financial consultants Applied Analysis, said continued population growth, increasing retail sales and surging gaming revenues provide the foundation for continuing growth in the locals gaming market.

Boyd earned $63.2 million in the quarter, or 70 cents a share, in the quarter ended March 31, up from $40.1 million, or 45 cents a share, a year earlier.

Adjusted to exclude stock option expenses, Boyd earned 78 cents a share in the quarter.

Cash flow, defined as earnings before interest, depreciation, taxes and amortization, was $63.2 million, up 57 percent from $40.1 million a year earlier.

The cash flow gains came from every nook of operations, except for the Stardust, which experienced a small decline.

Revenue rose 14 percent to $646.5 million from $566.9 million.

The average estimate of analysts polled by Thomson First Call had been for the company to earn 73 cents a share on revenue of $652 million. The estimates include stock options costs of 4 cents per share.

Boyd Chairman Bill Boyd and other company executives said the company's first-quarter profits were driven by business at Borgata in Atlantic City, by the opening of its new Blue Chip operation in Indiana and by its Las Vegas locals casinos, which included the former Coast Casino properties for the first time. Borgata is a joint venture of Boyd and MGM Mirage.

"With the expansion of locals gaming, we may be seeing a shift in consumer gaming patterns at the same time," Boyd said. "The market is experiencing a handful of new hotel-casinos with a new emphasis on entertainment, food and beverage and retail operations."

Boyd started milking that trend more fully in the first quarter with the opening of South Coast.

Jacobs, however, added that although the Boyd Gaming's downtown Las Vegas properties also did well, South Coast seemed to have cannibalized business from Boyd's other locals casinos, especially The Orleans.

Boyd opened South Coast, aimed at Las Vegas residents, in December.

Goldman Sachs analyst Steve Kent said in an investor advisory that, at least initially, South Coast's design and operation were disappointing, particularly compared with Station Casinos' Green Valley Ranch Resort and Red Rock Resort.

"It is not yet clear how this will translate into the property's performance. Broadly, though, locals Las Vegas business looks like it remained robust in first quarter," he said.

Boyd Chief Executive Officer Ellis Landau said although it is natural for customers to want to try new casinos, he expects some reversion to normal customer patterns in forthcoming quarters.

He and Boyd President Keith Smith also said opening without a full complement of amenities -- a second tower and the Interstate 15 interchange aren't open yet -- hampered results for the new property.

Looking forward, Gordon said Boyd should continue benefiting from the integration of its operations with Coast Casinos, which it bought two years ago; the strength of the locals gaming market; and, ultimately, the development of Echelon Place.

Echelon Place, a $4 billion hotel, retail and casino project on the Strip site of its Stardust, is expected to break ground a year from now and open in early 2010.

Smith added that so far, Boyd has seen little effect on its operations from the recent opening of Station Casinos' Red Rock Resort in Summerlin near Boyd's Suncoast.

Lehman Bros. analyst Felicia Hendrix said in an investor note Tuesday that Boyd should enjoy a number of catalysts over the next several months including the late June opening of its casino expansion at Borgata, and the openings of its Blue Chip barge expansion and South Coast.

"Given the stock's recent move, we could expect the market to be impatient with South Coast's early results. That said, we would be mindful that this property should continue to ramp and that the imminent Borgata opening could provide upside surprise. Further, we would expect continued strong results out of the Central properties," she said.

Boyd closed Tuesday at $52.81, down $1.20 or 2.22 percent, on volume of 1.7 million shares traded, double normal trading volume. The stock has ranged between $37.34 and $57.44 over the past year, with analysts setting an average target price of $55.42.

Boyd also said it raised its quarterly dividend by 8 percent to 13.5 cents from the previous 12.5 cents. The dividend is payable June 1 to shareholders of record May 12.