Boyd Gaming reverses loss, misses forecasts in quarter

2 November 2007

LAS VEGAS, Nevada -- For the next three years, Boyd Gaming Corp. is looking to the locals casino market and the company's Hawaiian visitor-fed downtown gambling halls to fuel its Southern Nevada earnings.

That is until the $4.8 billion Echelon development opens on the Strip by 2010.

Until then, Boyd will rely on four market segments for revenues, cash flow and profits: the locals market, Borgata in Atlantic City, casinos in the South and Midwest, and casinos in downtown Las Vegas. Wednesday's release of the company's third-quarter earnings highlighted that plan.

Boyd said it earned $31.8 million, or 36 cents a share during the quarter ended Sept. 30. The results reversed a loss of $12.9 million, or 15 cents a share, a year earlier. Analysts polled by Thomson Financial had expected Boyd to earn 42 cents a share in the quarter.

"Boyd posted solid third-quarter results, beating expectations," Bear Stearns gaming analyst Joe Greff said in a note to investors. "We believe many investors were expecting an earning per share miss in the quarter."

The earnings gave the company's shares a lift on the New York Stock Exchange. Boyd Gaming closed at $41.82, up $2.75 or 7.04 percent. More than 3.5 million shares were traded, more than five times the average daily volume.

"We think Boyd reported a generally solid third quarter," Goldman Sachs gaming analyst Steven Kent said in a note to investors. "After several quarters of challenging trends in Boyd's core markets, we think these in-line results could drive Boyd shares modestly higher."

Companywide, revenue was $490.1 million, a 7.7 percent drop from $530.7 million a year ago. Boyd Gaming executives said the revenue decline was due to the closing of the Stardust, which shut down a year ago and was imploded to make way for Echelon. Also, a large American Indian casino opened in Michigan, just 15 minutes across the border from the company's Blue Chip riverboat casino in Indiana.

"Looking forward, we're comfortable in the markets we have developed," Boyd Gaming President Keith Smith said Wednesday after a conference call with investors and analysts. "We believe we'll continue to do a good job running those businesses, they will continue to grow and produce good profits."

In the company's Las Vegas locals segment, revenues rose to $203.8 million from $199.5 million while cash flow, defined as earnings before interest, taxes, depreciation and amortization, grew 9 percent to $61.3 million.

Smith dismissed analyst comments about a downturn on the locals market.

"Maybe it's like the boy who cried 'wolf.' You can talk yourself into a problem," Smith said. "It's a combination of several things but we do a good job of running a very efficient operation."

Smith added that a large share of Stardust customers, displaced after the casino closed, moved to other Boyd Gaming properties, such as The Orleans and the company's three downtown casinos.

"We had a well-executed plan in place," Smith said. "We didn't get to keep everybody, but the lion's share of our customers stayed with us."

Meanwhile, the company's downtown casinos reported gaming revenues of $59.3 million, up from $58.1 million. Smith credited the company's long-standing Hawaiian customer base and continued reinvestment in the downtown market with the results.

"Even when business is down, we still get more than our fair share," Smith said. "Downtown will continue to be a good market for us."

Smith used the conference call to give analysts an update on Echelon, which is expected to include more than 4,700 hotel rooms inside five different hotels, a 140,000 square foot casino, as well as retail, entertainment, dining and meeting venues. A day after MGM Mirage raised the price of its CityCenter development to $7.8 billion, Smith wasn't ready to do the same with Echelon.

"We're in the early stages of a long and difficult process," Smith said. "We've had a tremendous amount of interest from the construction community and we're comfortable with the schedule and budget we have put forward."


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