MGM surpasses punchy profit growth targets

MGM surpasses punchy profit growth targets

Monday, August 8, 2016 Posted by Totally Gaming
Sale of Crystals retail gives $406m one-off boost to profits

The results statement from MGM Resorts International has grown more complex with the splitting off of 10 properties with a new Real Estate Investment Trust (REIT), MGM Growth Properties, but the company suggested in its second-quarter results statement that it was ahead of target with its long-term profit growth plan.

The plan was put in place this time last year to reinvigorate the business ahead of the REIT split. The metrics for the plan included the realisation of $300m of incremental adjusted EBITDA gains by 2017 and domestic adjusted property margins of 30%.

The company said at the time it had identified over 500 specific ideas it wished to implement across the whole business with a roughly one-third/two-thirds split between revenue-generating ideas and cost savings.

The success of the plan to date is shown by an increase in its incremental EBITDA target for 2017 to $400m. The $200m target for this year has also been raised to $275m and the company said that $76m of adjusted EBITDA benefit had been realised in the second quarter.

In total, adjusted EBITDA for the three months to June came in at $1.08bn, up from $641m in the same period last year, helped by the one-off gain of $406m from the sale of the Crystals retails shops within the City Centre project. This helped boost net income to $474.4m compared with $42.9m this time last year. However, total revenues were down slightly on last year, to $2.27bn compared with $2.39bn in 2015.

On the conference call with analysts, MGM Resorts International chief executive Jim Murren said the company had been up against a tough comparable period. “We had an extraordinary May last year with the Mayweather-Pacquiao fight and a couple of major music festivals,” he said. “It made for a really tough second quarter (comparison) and despite that our Strip (revenue per room available) grew 3.1 percent, which I know is below what we guided.”

Murren said Las Vegas was benefitting from a resurgence in high-end gaming business coming from Asia and mainland China. This was clearly at the expense of Macau which has continued its run of negative GGR growth into July. All of MGM China’s key metrics headed south in the second quarter. Compared to the same three months last year, MGM China’s net revenues dropped 19% to $452m, operating income was off by 11% to $51m and adjusted EBITDA was down 10% to $119m.

Clearly Macau could have been worse for MGM. While adjusted EBITDA for MGM China operation was down 10% for the quarter at $127m, its margin rose by 2.63 percentage points to 28.5%. The bright spot for MGM China was the figure for mass table GGR which rose 4% year-on-year. The rest of the figures were in negative including a minus 1% drop in visitation, a 9% drop in total GGR and a 20% fall in VIP table games GGR.

The results were published in the same week as the Borgata transaction was finalised which saw MGM buy out erstwhile partner Boyd Gaming’s half share in the venture. Despite the manifold issues in Atlantic City (including the closure last week of the Trump Taj Mahal) MGM said it remained positive on the prospects for the Borgata as the pre-eminent commercial casino in the Northeast of the US.

Totally Gaming says: The broad mix of domestic, Las Vegas Strip and Macau properties within the MGM portfolio means the company managed to perform relatively well despite coming up against tough comparatives from last year including Mayweather-Pacquiao.

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