Casinos & Hotels

MGM Macau Revenues Plummet and Activist Investor Battles On

Paul Ausick

MGM Resorts International (NYSE: MGM) reported first-quarter 2015 results before markets opened on Monday. The casino and resort operator posted adjusted diluted earnings per share (EPS) of $0.33 on revenues of $2.52 billion. In the same period a year ago, the company reported EPS of $0.20 on revenues of $2.63 billion. First-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.14 and $2.4 billion in revenues. One-time items added $0.07 per share to quarterly earnings.

MGM continues to battle activist hedge fund Land & Buildings, which owns a stake of 0.38% in the company and proposed in March that the resort and casino operator spin off its real-estate holdings into a real estate investment trust (REIT). The fund has also offered four replacements for current board members.

The company’s largest stakeholder, activist investor Kirk Kerkorian’s Tracinda, which holds an 18.6% stake, said last Friday that it supports management and will “vote [its] shares for the current board’s nominees.”

An even bigger problem for MGM, however, is the staggering drop in Macau casino revenues. Gambling revenues plunged 38.8% in April, the 11th consecutive monthly decline according to a report at Reuters. MGM China posted net revenue in the quarter of $630 million, a drop of 33% year-over-year. VIP table games revenue decreased 45% due to a decline in VIP table games turnover of 51% compared to the prior year quarter. The Chinese government’s crackdown on gambling junkets has severely affected casino operators’ revenues, and no end to the decline is in sight.

In the United States, MGM’s revenues rose 1% primarily on a rise of 5% in slot machine revenues. Room revenues increased by 2% and food and beverage revenue rose 1% as well. Entertainment revenue fell 6% and operating income for MGM’s wholly-owned U.S. resorts dropped 3%.

MGM did not offer guidance in its announcement, but the consensus analysts’ estimates for the second quarter call for EPS of $0.14 on revenues of $2.47 billion. For the full year, analysts are looking for EPS of $0.42 on revenues of $9.74 billion.

Monday’s report is better than expected, but the continuing sharp declines in Macau overwhelm the small gains in domestic results. The worst part might be that MGM and the other resort and casino operators have virtually no chance to break their fall.

Shares traded down about 3.6% in Monday’s premarket session at $20.64. The stock’s 52-week range is $17.25 to $27.64. The consensus price target on the stock is about $26.00.

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