MGM Shares Volatile After Hours as Las Vegas Numbers Disappoint, But Macau Surprises, MGM Grand Deal Could Come Early 2020

Posted on: October 30, 2019, 02:42h. 

Last updated on: October 30, 2019, 04:21h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of MGM Resorts International (NYSE:MGM) slid more than three percent during Wednesday’s after-hours session.  That happened after the company reported third-quarter results that missed estimates. The stock was lower by almost 0.50 percent at this writing.

On a non-generally accepted accounting principles (GAAP) basis, the gaming company earned 31 cents per share on revenue of $3.31 billion.

Analysts expected the company to earn 32 cents a share on revenue of $3.33 billion for the September quarter. During the 90 days leading up to today’s report, one analyst raised an earnings estimate on MGM, while four lowered projections. There were four upwardly revised and six lowered revenue forecasts over that period.

Las Vegas, where MGM is the largest operator, was the culprit behind the company’s weak third-quarter results. On the Strip, where MGM runs the Bellagio, Mandalay Bay, and Mirage, among other gaming venues, the company notched adjusted property earnings before interest, taxes, depreciation and amortization (EBITDA) of $441 million, below the Wall Street forecast of $454 million. Non-gaming revenue bolstered MGM’s third-quarter Las Vegas numbers.

Our Las Vegas Strip Resorts saw an increase in revenues by 4 percent, with non-gaming revenues up 6 percent, thanks to a robust performance in rooms and food and beverage,” said CEO Jim Murren in a statement.

In Sin City, MGM’s adjusted table games hold increased four percent in the September quarter to $1.5 billion, while adjusted property EBITDA margins surged 41 basis points to 29.30 percent.

Macau Surprise, Regional Strength

While some rivals recently noted softness in Macau due to a sluggish Chinese economy and the trade war with the US, MGM’s third-quarter results on the peninsula were solid. Adjusted property EBITDA at MGM Cotai was $182 million, up from $130 million a year earlier. That beat analysts’ estimates calling for $181 million.

Strength for MGM at the higher end of the Macau market during the third quarter came as some competitors warned about weakness in the VIP segment there.

In addition to Macau, some of MGM’s domestic regional properties buffered the slack Strip results, with Murren specifically pointing to the Borgata in Atlantic City, N.J. and MGM National Harbor in Maryland.

MGM 2020 Ahead Of Schedule

“MGM 2020,” the company’s cost-cutting initiative unveiled earlier this year, is running ahead of schedule, according to Murren.

The effort to rein in expenses and raise cash was hastened earlier this year month when MGM announced the sales of the Bellagio and Circus Circus on the Strip. Combined, those deals will net the gaming operator $4.3 billion in cash that will be used to reduce debt and increase capital return to investors.

“Our asset light transition will generate significant proceeds from real estate monetization that can be used to strengthen our balance sheet, meaningfully reduce our shares outstanding, and invest in select growth initiatives,” said Murren. “Our increased profits spread across fewer shares outstanding will result in enhanced free cash flow per share and generate meaningful value for our shareholders.”

The MGM boss reminded analysts and investors that the company retains “valuable” assets in the form of the MGM Grand, MGM Springfield, a 50 percent stake in CityCenter, and a 68 percent interest in real estate firm MGM Growth Properties (NYSE:MGP).

“The Bellagio real-estate transaction represents more to us than a smart financial deal,” said Murren on a conference call with analysts and investors. “It provides a likely blueprint for the future.”

He said a deal for MGM Grand could close in the early stages of 2020. Previously, analysts expected MGM would sell the Bellagio and MGM Grand in one transaction.