MGM Resorts' Earnings Soar on Solid Macau Revs - Analyst Blog

Shares of Las Vegas-based casino operator MGM Resorts International MGM surged more than 8%, as the company's first-quarter results beat expectations. The market was particularly positive on the earnings upswing, which was bolstered by continued strength in Macau and improved room bookings on the Las Vegas Strip.

MGM Resorts' first-quarter 2014 adjusted earnings of 21 cents per share comprehensively beat the Zacks Consensus Estimate of 10 cents as well as the prior-year quarter figure of a penny.

The better-than-expected bottom-line performance, especially in MGM China, can be attributed to higher top line.

Our proven model had predicted that MGM Resorts was likely to beat earnings because it had the right combination of two key components – an Earnings ESP of +20.00% and a Zacks Rank #3 (Hold).

In the quarter, total revenue increased 11.8% year over year to $2.63 billon, which surpassed the Zacks Consensus Estimate of $2.57 billion by 2.3%. Quarterly revenues benefited from good performance in China and CityCentre business.

Domestic Operations

The company's owns and operates several properties, spread across Las Vegas, NV. Apart from this, the company boasts several assets in Mississippi and Michigan.

Casino revenues from wholly owned domestic resorts declined 2% due to a 110 basis points (bps) decrease in table games hold percentage and a small decrease in slots revenues. Slots revenues increased 1% compared to the prior-year quarter at the company's Las Vegas Strip resorts, but decreased 5% at the company's other wholly owned domestic resorts.

Room revenues increased 13.0%, primarily attributable to a 14.0% rise in revenue per available room (RevPAR) at the Las Vegas Strip properties due to higher average daily rate.

Operating income for the company's wholly owned domestic resorts increased 20% for the first quarter of 2014 compared to the prior-year quarter, primarily due to the increase in rooms revenues and margins.

CityCenter Holdings

MGM's urban complex CityCenter operates through two segments — resort and residential. Under the resort operations, the company boasts four properties — Aria, Crystals, Vdara and Mandarin Oriental. Both CItyCenter's resort operations and residential business posted solid results during the quarter.

Net revenue from CityCenter increased 6.8% year over year to $336.5 million due to good performance of all it divisions. Net revenue from resort operations grew 2% year over year to $313.0 million with the rise in sales across two properties — Aria and Crystal.

Aria's table games hold percentage was 26.8% in the quarter versus 26.3% in the prior-year quarter. Crystals, Vdara and Mandarin Oriental also put up a decent show. Residential sales in the quarter were $0.23 million, substantially higher than the year-ago quarter's level.

CityCenter's adjusted EBITDA improved 2% year over year to $95 million primarily benefiting from higher table games hold percentage. CityCenter's operating income increased to $5 million for the first quarter of 2014 primarily due to increased revenues and strong margins related to its hotel operations.

MGM China

MGM China's net revenue was up 26.0% year over year to $941.0 million due to increases in main floor table games and VIP revenues. Main floor table games revenues went up 45% year over year and VIP table games turnover increased 12%.

Operating income was $165 million, up 66.7% from the prior-year quarter. Adjusted EBITDA was a record $241 million, a 33% increase compared to the prior-year quarter.

Dividends

MGM China paid a $499 million dividend in Mar 2014, of which $254 million was distributed to MGM Resorts and $245 million was distributed to non-controlling interests.

Our Take

Going forward, we believe the company's high gaming potential at prime locations, such as Las Vegas and Macau will aid market share gain. Moreover, the company's upcoming projects in the Cotai Strip are expected to spur growth. Despite the sluggish economic recovery, we expect the company's strong brand portfolio, solid Macau mass market revenues to bode well for the company in the upcoming quarters. However, we remain concerned that the slowdown in the Chinese economy and tighter credit interest rates may affect overall demand for gaming.

Other Stocks to Consider

MGM Resorts sports a Zacks Rank #2 (Buy). Other casino operators that are worth considering at the current level include Melco Crown Entertainment Limited MPEL, Multimedia Games Holding Company, Inc. MGAM and Wynn Resorts Ltd. WYNN. All these stocks have the same rank as MGM Resorts.