MGM shares slump on convention miss

MGM shares slump on convention miss

Friday, February 17, 2017
Vegas operator blames holiday timings for earnings miss

MGM Resorts International saw its share price take a hammering this week after the company released fourth-quarter results which showed its Nevada casinos suffering from a downturn in convention trade and a shift in the holiday calendar.

Jim Murren, chief executive, was forced to apologies on the conference call with analysts for not being clear enough at the time of its third-quarter when he warned on the timing of the Jewish holidays in December.

Combined with issues with convention business, it meant that like-for-like revenues for the three months to December rose 2 percent, although with the additional revenues from Borgata and the new National Harbor, Maryland casinos actual revenues were up 17 percent at $1.8bn.

Adjusted EBITDA for the period rose 14 percent to $493m but on a like-for-like basis it was up only 1 percent.

The share price fell 9 percent on the day of the results statement.

Murren said between the timing of the holidays and similar scheduling issues with “literally one big group” on the conventions business meant that EBITDA was almost $20m short of where it would have been.

Analysts pointed out the numbers were short of expectations. Deutsche Bank analyst Carlo Santarelli said in a note to clients: "We believe the shift from convention to leisure/casino channels at Mandalay/MGM Grand was more painful than expected from a [year-over-year] perspective and contributed to the miss."

Wells Fargo’s Cameron McKnight said the forward guidance was “tepid”. Murren said on the call that 2017 had started well and that the company had a very clear path for continued free cash flow acceleration.”

Analysts at Union Gaming also had continued optimism regarding this year. “While the disparity between expectations and results in the fourth quarter give some investors pause, we remain comfortable with the 2017-18 outlooks. Management cited that about 90 percent of its target convention business for 2017 is already on the books. Further, much of the core group and convention business is contracted under multi-year agreements with built-in price escalators.”

Murren noted that MGM had settled a property tax dispute with the state of New Jersey in relation to the Borgata in Atlantic City. The settlement means that MGM will split a $72m repayment with former Borgata partners Boyd Gaming.

In Macau, net revenues hot $500m, up $1m on the prior-year period. VIP tables games revenue increased 7 percent due to a greater luck factor.

On the positives, MGM separately announced it had prised a big Microsoft conference away from another destination. MGM said the agreement represented the largest single-corporation event in Las Vegas and would bring in up to 30,000 participants. The multi-year deal begins with the first conference in July.

Totally Gaming says: MGM’s problems this week displays how the moving parts of the casino business can trip up even the biggest of operators. The free-cash flow that Murren talks about means the company is on its way to once again being investment grade which is a huge turnaround from just a few years ago. But to get there, the less slip up when it comes to earnings forecasts the better. 

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