Boyd Gaming cautious on '08 outlook

LAS VEGAS, Nevada -- Wall Street analysts on Wednesday tried to push Boyd Gaming Corp. executives into making bold predictions on the prospects for the gaming industry in 2008.

Keith Smith, in his first quarterly earnings conference call with analysts and investors as company CEO, wasn't biting.

Smith, who added the CEO duties to his role as Boyd Gaming president on Jan. 1, said a softness in business the company experienced in November and December had carried into January. The company's casinos in February, however, have seen a slight boost in customers and spending activity.

Still, he told analysts that two or three months of results don't constitute a trend.

"Consumers, especially in Las Vegas, are being much more cautious on how they are spending their money," Smith said. "The general economic trends show a lot of uncertainty. I'm always reluctant to make any predictions about trends in the marketplace."

The fourth quarter also weighed on the company. Boyd executives said net income was $31.2 million, or 35 cents a share, for the three-month period ended Dec. 31, down from $56.3 million, or 64 cents per share, a year earlier. Analysts surveyed by Thomson Financial had forecast earnings of 37 cents a share.

Quarterly revenues fell 8.1 percent, to $478.6 million from $520.8 million.

For all of 2007, Boyd Gaming's revenues were just under $2 billion, down from $2.2 billion in 2006.

With construction proceeding on Boyd Gaming's eventual Strip flagship, the $4.8 billion Echelon project that is not expected to open until the later half of 2010, the company relies on its other markets for earnings, revenue and cash flow.

The company's Las Vegas locals market, which includes Sam's Town and the Coast Casinos subsidiary, reported revenues of $214.4 million, a decrease of 1.5 percent compared with $217.7 million a year ago. Cash flow, however, defined as earnings before interest, taxes, depreciation and amortization, was $72.8 million, a 3.4 percent increase compared with $70.4 million a year ago. Smith told analysts the money customers spent on nongaming items, such as restaurants and entertainment has dropped off.

"The locals market is holding its own, especially with the competition out there," Smith said.

The company's downtown casinos generated revenues of $66.9 million and cash flow of $14.8 million in the quarter. Both numbers were off from revenues of $69.1 million and cash flow of $17.1 million a year ago. Smith said the business from the company's Hawaiian market remains strong because the Hawaii economy is still vibrant. Walk-in customer traffic, however, has decreased.

Deutsche Bank gaming analyst Andrew Zarnett said Boyd Gaming and other locals casino operators could suffer down the road.

"Given the pressure on this market as consumers deal with a challenging economy and declining household wealth, we were pleased by the cost containment Boyd has implemented," Zarnett said in a note to investors. "Nevertheless, we expect weaker results as the housing debacle and slowing citywide economics pervade the local economy."

Smith said construction of the 800-room Water Club, a $400 million hotel expansion to the company's Borgata resort in Atlantic City, continued with an expected opening in June. He said the Borgata, which reported net income of $29.4 million and cash flow of $52.9 million in the quarter, slight increases from a year ago, outperformed the total market while facing competition from new casinos in Pennsylvania.

Consequently, poor results at the company's Blue Chip riverboat casino in Indiana, drove down revenues for Boyd's Midwest and southern regions. The Blue Chip is undergoing a $130 million, 300-room hotel expansion that is expected to open in December.

On Tuesday, Pinnacle Entertainment executives said challenging credit markets may delay the company's development plans, including construction of a $2 billion resort in Atlantic City.

Smith said Boyd Gaming has a revolving $4 billion credit line to ensure Echelon's development. The company, however, has slowed plans to develop a casino at the Dania Jai Alai facility near Fort Lauderdale, Fla., because of competition from nearby Indian casinos and underperforming gaming facilities within the market.

Boyd Gaming shares fell 22 cents, or 0.9 percent, Wednesday to close at $24.28 on the New York Stock Exchange.