Boyd Gaming's profits miss forecasts

27 October 2006

LAS VEGAS, Nevada – Boyd Gaming Corp. executives want Wall Street to view the company's third-quarter earnings as a transition period for the Las Vegas-based casino operator.

With two Strip casinos sold off and a third to shut its doors next week, company leaders tried to present a positive spin Thursday to a skeptical market as Boyd Gaming's results for the three-month period ending Sept. 30 came in far below expectations.

"This truly is a transitional time for us," Boyd Gaming President Keith Smith said following a conference call with analysts and investors. "We look at our company as addition through subtraction. When you look at the individual transactions we've made, yes, we've lost some cash flow. But we've added some future development sites and we believe that will be viewed (by Wall Street) in a very positive way."

With competition accelerating in the Las Vegas market and a down quarter at the company's Borgata hotel-casino in Atlantic City, Boyd Gaming lost $12.9 million during the time period, or 15 cents per share, compared with a net income of $32.9 million or 36 cents per share a year ago.

When earnings were adjusted to account for results from casinos Boyd no longer operates, the company reported a net income of $38.8 million, or earnings of 44 cents per share.

However it's viewed, the earnings missed the estimate of analysts polled by Thomson First Call, who predicted earnings of 52 cents per share in the quarter.

"There is no way around it, Boyd missed," CRT Capital Group gaming analyst Steve Ruggiero said in a note to investors. "As recently as October 12, we stated that there was 'a slightly greater chance for disappointment.' Well, it is just that, a disappointment, but not that big of one when you get into the numbers."

Added Goldman Sachs gaming analyst Steven Kent, "We expect investors will be disappointed with the Boyd results, even though the Street was not expecting much this quarter."

Shares of Boyd Gaming fell Thursday on the New York Stock Exchange, closing at $39.69, off 6 cents, or 0.15 percent.

Overall revenues for Boyd Gaming, which operates 17 casinos in Nevada, New Jersey, Illinois, Indiana, Louisiana and Mississippi, were $530.7 million for the quarter, a 1.4 percent increase from $523.5 million a year ago.

Boyd Gaming's results were also affected by a $65 million impairment loss on the sale of the South Coast to former Coast Resort Chairman Michael Gaughan, who gave up his stock ownership in Boyd and his place on the company's board of directors. The proceeds from the sale of Gaughan's stock, estimated at $512 million, was use to pay down $400 million in debt and repurchase 3.4 million shares.

The company's Las Vegas casinos were a mixed bag in the quarter.

Revenues for the locals segment, which includes Sam's Town, Gold Coast, Suncoast, The Orleans and its small Henderson casinos, were $199.5 million in the quarter, a 7 percent decrease compared with $214.2 million a year ago. The company cited increases in competition and promotional spending for the down quarter. Results from the Barbary Coast, swapped to Harrah's Entertainment for 24 acres of Strip land, were not included in the figures.

Meanwhile, the company's three downtown Las Vegas casinos reported $58.1 million in revenues, a decrease of 6 percent compared with $61.9 million last year.

However, earnings before interest, taxes, depreciation and amortization climbed 2 percent to $9.5 million, compared with 9.3 million last year.

Smith said disruptions downtown, such as new construction at the Golden Nugget by its owner, Landry's Restaurants, has resulted in fewer visitors.

"Downtown has always been a very stable market and a very steady earner for us," Smith said. "Our managers have been able to fine-tune the operations every year so that we operate more efficiently. We want strong competitors downtown because they bring us more customers."

The Stardust, which closes Wednesday to make way for the $4 billion Echelon project, had revenues of $32 million in the quarter, down from $38.4 million a year ago.

Operations at Borgata in Atlantic City, which Boyd jointly owns with MGM Mirage, were affected by a three-day shutdown of casinos in July by the New Jersey government over a state budget impasse, and higher promotional costs when the property reopened. The Borgata had just opened a large casino and restaurant expansion when the shutdown took place.

Net income at Borgata declined to $45.1 million in the quarter, compared with $55.9 million a year ago.

"The Borgata results were also disappointing," Bear Stearns gaming analyst Joe Greff said in a note to investors. "Benefits from the property's recent expansion were more than offset by the three-day government shutdown."

Boyd Gaming said it will implement a new branding initiative over the next 12 months that will network each of the properties' player clubs under one system, just as Harrah's Entertainment has done with its highly successful Total Rewards program.

Smith said that will allow customers of Boyd Gaming properties in the south and Midwest to earn trips to the company's Las Vegas casinos.

"Capitalizing on our central customer database, we will begin a phased introduction of a one-card player program," Smith said. "We believe by combining our individual property player clubs into a one-card program, we can enhance the value of our player clubs, as well as drive additional cross-property visitation."


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