Boyd Weathers Through Quarter

4 November 2005

LAS VEGAS – Boyd Gaming Corp. took a serious hit from hurricanes Katrina and Rita in the third quarter, but still managed to beat Wall Street expectations thanks to a lifeline from the Las Vegas locals market and Atlantic City.

"The Las Vegas locals market is solid and the Borgata (in Atlantic City) is outstanding," Susquehanna Financial Group gaming analyst Brian McGill said Thursday after the Las Vegas-based company announced its earnings.

Boyd's net income dropped to $32.9 million, or 36 cents a share, in the three months ended Sept. 30, from $35.5 million, or 40 cents a share, a year earlier.

Excluding a $17.5 million debt charge and $7.3 million for hurricane expenses, Boyd said it earned 57 cents a share. Analysts polled by Thomson Financial had predicted earnings excluding items of 51 cents per share.

Boyd Chief Financial Officer Ellis Landau estimated that earnings per share took a hit of 5 cents a share in the past five weeks of the quarter because of the hurricanes, for which Boyd is seeking substantial recovery from its insurance carriers.

The dip in earnings came despite a 2.7 percent increase in revenue to $536.5 million from $522.5 million.

Brian Gordon, a partner in the Las Vegas financial consulting firm Applied Analysis, said Boyd managed to increase revenues markedly in each of its markets except for the Gulf Coast region.

Cash flow, or earnings before interest, depreciation, taxes and amortization, increased to $156 million, up 17 percent from $133 million a year earlier.

Landau said the gains in revenue and cash flow, a key measure of profitability, came despite disruptions to Boyd's four properties in Louisiana and Mississippi beginning with Hurricane Katrina in late August. The disruptions included the closures of Treasure Chest for 35 days and the Delta Downs racetrack for nine days in the quarter.

Boyd President Keith Smith attributed the gains to growth in Las Vegas and Atlantic City, which he said are the company's key markets.

Landau said everyone "joined the party."

Boyd's Las Vegas properties, operating principally in the locals market, as a group reported a 10 percent increase in revenues and a 33 percent increase in cash flow in the third quarter, compared with the same period a year earlier.

McGill said Boyd's emphasis on the Las Vegas market is smart because it's the world's best gaming market now.

Landau said revenue for Boyd's 11 Nevada properties increased 28 percent and cash flow increased 22.5 percent.

"The Las Vegas economy remains strong, with nation-leading growth in population and jobs," he said.

Cash flow from the Stardust increased 60 percent; cash flow from the company's new Coast properties grew 34 percent. Boyd's downtown properties had a 23 percent in cash flow.

Gordon said the growth in profitability in the Las Vegas market is impressive. He suggests not only that volumes are growing, but that the company is operating efficiently following its takeover of Coast Casinos.

University of Nevada, Las Vegas, professor Bill Thompson, who specializes in gaming studies, said with Las Vegas as its anchor, Boyd's growth will hold up as long as the local population continues to increase and the economy prospers.

"That makes their focus on Las Vegas a wise policy, especially as long as we have older people and construction people moving here," he said. "The older people are affluent and can afford to gamble and buy homes. Construction workers build their homes and then go to the locals casinos," he said.

And while falling consumer confidence is wearing on the hospitality industry as a whole, locals casinos, so far, have proved immune, he said.

"Here, things are pretty good," Thompson said. "Workers are getting wage increases and the economy is expanding. So my bet is consumer confidence here is strong and likely to withstand national trends."

In Atlantic City, Borgata reported a record quarter, with property-level cash flow of $75.5 million, exceeding the previous record quarter by $12.5 million.

"Atlantic City just shattered records," Landau said. "Borgata has established itself as a category-killer property in that market," he said.

Boyd's share of the cash flow from Borgata, which it operates in partnership with MGM Mirage, increased 27 percent.


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