Boyd Gaming sees small second-quarter profit, plans new projects

25 July 2012

Boyd Gaming Corp. attributed softer-than-expected second-quarter results to the nationwide economic slowdown that began this summer.

The company on Tuesday reported a second-quarter net profit of $1 million, or 1 cent per share, narrowly reversing a $3 million net loss, or 3 cents per share, from the same period a year earlier.

Boyd reported a 3.9 percent drop in adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, from $118.4 million to $113.8 million, 12 percent below analyst consensus.

In a conference call, President and CEO Keith Smith said executives began to see business trends weaken in May and continue into June, a change that was unexpected.

But Boyd expects two new development agreements announced Tuesday in Broward County, Fla., and Sacramento County, Calif., to present "long-term growth opportunities for the company."

In Florida, Boyd entered into an agreement with BankAtlantic Center developer Sunrise Sports Entertainment. BankAtlantic is home to the National Hockey League's Florida Panthers team. If gaming is expanded in South Florida, as the state Legislature discussed last year, Boyd will work with Sunrise Sports to develop a casino there.

"We just wanted to be prepared," Smith said after the earnings call. "There were conversations in the last session about expanding gaming in Florida, particularly in South Florida. I have no insight into expanding gaming in Florida, but given prior conversations, we just wanted to be prepared if something happened. Nothing ventured, nothing gained."

Boyd also signed a deal with Wilton Rancheria, an American Indian tribe based near Sacramento, to build a gaming entertainment complex. The company expects the regulatory approval process to take about two years. The Wilton Rancheria casino would be the company's first in California.

"Opportunities in our business are somewhat limited. We can't go to any state out there and pick any corner and build an operation," Smith said. "We've been pretty successful in the last year, executing five agreements and nailing down a good pipeline."

One of those agreements, the acquisition of Peninsula Gaming announced in June, is expected to close in the second half of the fourth quarter, Boyd said Tuesday. The deal adds five regional properties in the Midwest and the South to the company's roster. That region is the company's top market, with second-quarter revenues up 28.6 percent and cash-flow growing by 20.6 percent.

The Las Vegas locals and downtown markets did not fare so well. Smith said temporary factors caused revenues and cash flow to drop in both areas. Locals casinos were hit by a run of bad luck at the sports books and higher employee benefit costs. Boyd pulled back its Hawaiian marketing efforts in the second quarter and found that led to decreased visitation to the company's downtown properties. Smith said the company will ramp up marketing in the third quarter.

Smith said Boyd will also continue to evaluate acquisition and development opportunities in other markets.

"Management continues to try to diversify the business away from the struggling Las Vegas locals market," Macquarie Securities gaming analyst Chad Beynon wrote in a note to investors.

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