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Rod Smith

Station Smashes Profit Forecasts

21 April 2004

LAS VEGAS -- Station Casinos on Tuesday posted record first-quarter adjusted earnings of 51 cents a share, an increase of 122 percent over the prior year's 23 cents a share on a comparable basis.

The "rock star" performance blew away Wall Street estimates of its first-quarter revenues, cash flow and earnings per share, said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

Station Casinos' revenue rose 19 percent to $239 million from $200 million.

Cash flow, a key measure of profits, increased to $94.1 million, up 42 percent from the same quarter a year earlier. Cash flow is generally defined as earnings before interest, taxes, depreciation and amortization.

However, the company posted a net loss of $29.8 million in the first quarter, reversing year-earlier income of $12.6 million a year earlier, because of a $93 million charge to refinance debt.

In a conference call with Wall Street analysts, Station Casinos Chairman Frank Fertitta III said the debt refinancing would strengthen the company's performance and enhance its ability to raise money by significantly clipping long-term debt service.

He said the company managed to establish fixed rates on its debt and extend the maturities for eight to 12 years.

"We see it as a win-win. And we're saving about $15 million a year on interest," Fertitta said.

Analysts said Station Casinos' leading position in the Las Vegas locals market explained its performance and confirmed market confidence in the company.

The price of Station Casinos' shares has increased 55 percent so far in 2004, compared with the Dow Jones casino index, which has increased 27 percent, and the Standard & Poor's 500, which has increased 2.5 percent.

Deutche Bank analyst Marc Falcone said the company's first-quarter performance confirmed the strength of the company's business plan and its emphasis on the Las Vegas locals market.

In an investor advisory, Merrill Lynch said that relative to other growth companies, Station has a defensible competitive position at existing Las Vegas properties, a visible pipeline of opportunities, and the ability to fund growth from internally generated funds even while paying a dividend.

Greff said demand levels continue to improve in the locals market, which boosted Station Casinos in the first quarter and should keep it growing through the year.

He also pointed out that the flow-through margins on incremental revenues are approaching 60 percent as revenues increase without added capital spending and the company continues to progress on tribal management contracts and development projects.

Greff said these are catalysts that should continue to drive the company's development and share prices.

Fertitta and Stations Casinos Chief Financial Officer Glenn Christenson were both optimistic about future prospects.

Christenson said the regulatory and tax climate is better in Las Vegas where most Station Casinos' operations are based than anywhere else in the country, which means its local growth prospects are strong.

And tribal gaming, which Christenson said the company sees as its second franchise alongside locals casinos, is rapidly expanding across the country.

Fertitta said the "organic growth" of the company is based on the development of Las Vegas rather than added capital investment, which means that a large proportion of added revenues will continue dropping straight to the bottom line.

Station Casinos shares closed Tuesday at $48.81, up $1.54, or 3.3 percent, on 422,600 shares traded, only about one quarter the normal volume.

Station Smashes Profit Forecasts is republished from