Charges figure in sending Boyd Gaming's profits lower

LAS VEGAS, Nevada -- Boyd Gaming Corp. executives want investors and Wall Street to view the company's second-quarter earnings as a blueprint while the casino operator moves ahead over the next three years.

On paper, results for the quarter, which ended June 30, appear to have slipped in comparison with a year ago.

The company's net income was $39.9 million, which translated to an earnings per share of 45 cents, down from $44.5 million, or 49 cents per share, a year ago. Analysts polled by Thomson Financial expected Boyd to earn 47 cents per share.

However, the figures were affected by a number of charges, including a nearly $17 million loss on a financing matter, almost $7 million in preopening expenses related to construction of the $4.8 billion Echelon project on the Strip, and almost $8 million in other charges.

Boyd's diluted earnings showed a net income of $22.9 million, or earnings per share of 26 cents.

During the quarter, the company's net revenues were $511.4 million, a decrease of 7.3 percent compared with $551.5 million a year ago, which included a contribution of $35.4 million in revenues from the now closed Stardust.

With Echelon construction under way on the imploded Stardust site, and a $400 million expansion to the Borgata in Atlantic City and $130 million hotel expansion at the Blue Chip riverboat casino in Indiana, Boyd Gaming has set a path forward.

"When you look at the properties we own, this is the core company over the next three years," Boyd Gaming President Keith Smith said following a conference call with analysts and investors. "There was a lot of noise in the numbers, but when you cut through it all, our performance was very much in line with what we expected."

Wall Street's reaction was mixed. Boyd announced earning before the opening of trading on the New York Stock Exchange and several gaming analysts correctly predicted the shares could be off. Boyd's stock closed Wednesday at $42.41, down $1.69 or 3.83 percent. Almost 3.2 million shares were traded, three times the average daily volume.

CIBC World Markets gaming analyst David Katz thought the pressure on Boyd shares might have reached its end.

"With the recent sell-off in the shares on waning take-out speculation, we expect investors to take a more fundamental approach to valuing the shares," Katz said in a note to investors.

In Las Vegas, revenues increased to $211.2 million at the company's locals-oriented properties, including the Coast Casinos subsidiary and Sam's Town. Also, cash flow at the locals casinos, reported as earnings before interest, taxes, depreciation and amortization, was $66.8 million, a 2.5 percent increase.

"For the first time since the recent capacity increase in the Las Vegas locals market, all four of our major Las Vegas locals properties are performing above their prior year levels," Boyd CFO Paul Chakmak said on the conference call. "Given the magnitude of development in the Las Vegas metropolitan area over the next five years, we believe these properties will continue to show outstanding growth and return."

Boyd said its overall revenues were also affected by reduced results coming from the Treasure Chest casino in New Orleans. Following Hurricane Katrina in August 2005, the Treasure Chest was one of only two casinos to reopen immediately on the Gulf Coast, with the casino reporting monthly gaming revenues often more 100 percent higher from the prior year.

However, as more casinos reopened on the Gulf Coast, the Treasure Chest's numbers decreased. Cash flow in the second quarter was off by almost 45 percent from last year. Still, results at the casino are up more than 60 percent from the months before Katrina devastated the area.

"As we have now seen three consecutive quarters of stable (cash flow) from Treasure Chest, we believe that the near= to midterm (cash flow) will continue to run at its current levels," Chakmak said.

The Borgata, which is adding an 800-room hotel addition, was affected along with the rest of the Atlantic City market by new slot machine parlors in Pennsylvania and competition from New York racetracks. Nevertheless, Smith said the Borgata's gaming revenue rose 3 percent over the last year's second quarter and nongaming revenue up 11.5 percent. The casino's market share of Atlantic City's business grew from 13.3 percent a year ago to 14.6 percent in the 2007 second quarter.