Las Vegas Sands, MGM, Wynn May Signal `Ugly' 2009 for Casinos, by Beth Jinks - Bloomberg - 27th October 2008

Oct. 27 (Bloomberg) -- Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Mirage, the three largest U.S. casino companies, may signal an ``ugly'' year ahead as gamblers curb casino trips and betting from Las Vegas to Macau.

Eight straight months of declining gambling revenue on the Las Vegas Strip and tightened visa limits by authorities in Macau, the only place in China where casinos are legal, eroded third-quarter profits, said Dennis Forst, an analyst at KeyBanc Capital Markets in El Segundo, California.

``It's ugly,'' Forst said in an interview. ``Investor expectation is for nothing good.''

Investors will scrutinize earnings forecasts to judge whether Sands and MGM Mirage can generate enough cash to pay for expansion projects and cover loans amid the worst financial crisis since the Great Depression.

Shares of Wynn, controlled by billionaire Steve Wynn, have dropped 67 percent this year. Sands shares plunged 23 percent on Oct. 24, bringing its year-to-date decline to 94 percent and forcing it to relinquish its ranking as the biggest U.S. casino company by market value to Wynn.

No. 2 MGM Mirage, majority owned by Kirk Kerkorian, has fallen 87 percent. Penn has shed 79 percent, while Melco Crown Entertainment Ltd. has lost 72 percent.

Wyomissing, Pennsylvania-based based Penn National Gaming Inc. kicks off the biggest casinos' earnings reports today. MGM reports Oct. 29, and Wynn announces the next day. Las Vegas Sands hasn't said when it will release its results.

Trailing Estimates

Preliminary third-quarter profit released earlier this month by Penn and Wynn trailed company and analysts' estimates.

``Mid-September was gloom and doom; you could see a dramatic retrenchment in consumer gambling behavior,'' said Joel Simkins, an analyst at Macquarie Securities USA Inc. in New York. ``You could pretty much shoot a cannon through most casinos, that's how empty they were.''

Gambling revenue on the Las Vegas Strip has slipped 6.7 percent this year, ``on track'' for its biggest annual decline since data started being compiled in the mid-1980s, the Nevada Gaming Control Board said.

``This fourth quarter looks like it's going to be very difficult,'' said Frank Streshley, a senior analyst at the board. ``Spending is just way down from where it was a year ago or even two years ago.''

Atlantic City gambling revenue fell 15 percent in September, the biggest monthly decline since casinos first opened there in 1978. Winnings by the 11 casinos in the second- biggest U.S. gambling center have fallen 6.3 percent this year.

Gulf Coast

September hurricanes may have hurt earnings at companies with Gulf Coast casinos, including Pinnacle Entertainment Inc., Boyd Gaming Corp., Isle of Capri Casinos Inc. and Penn, analysts say.

Las Vegas faces a ``tough 2009'' as businesses scale back the conventions that usually fill 40 percent of rooms on the Strip, Simkins said. International tourists who once spent freely in Vegas because of the cheaper dollar may stay away as the currency regains strength, he said.

Spokesmen for Las Vegas Sands and MGM declined to comment before the earnings, and a Wynn spokeswoman didn't return an e- mail.

Sands, Wynn, and Melco Crown are spending billions to add resorts in Macau, a former Portuguese colony. Tougher visa limits have progressively reduced the number of visitors, causing casino revenue to fall for a second straight quarter in the three months that ended Sept. 30.

Capital at Sands

Sands, the owner of the Venetian and Palazzo in Las Vegas, said Oct. 24 it hired an investment bank to raise capital with the help of billionaire Chief Executive Officer Sheldon Adelson.

The Las Vegas-based company may say profit excluding some items fell to 10 cents a share from 12 cents a year earlier, based on the average estimate of 18 analysts.

MGM Mirage, with 10 Strip casino resorts, may report this week that third-quarter adjusted earnings fell to 34 cents a share as revenue declined, according to the average estimate of 22 analysts.

Wynn, which is building resorts called ``Encore'' to add to its namesake Strip and Macau properties, reported Oct. 13 a preliminary operating loss of as much as $2 million from its Vegas casino.

Melco Crown, a Nasdaq-listed Macau venture between Australian billionaire James Packer and casino magnate Stanley Ho's son Lawrence, may report next month that that it broke even, four analysts surveyed by Bloomberg estimate. The company posted a loss a year earlier, before its Crown Macau casino opened in May.

Penn Preview

Penn, the owner of 19 casinos and racetracks, said Oct. 2 that adjusted earnings before interest, taxes, depreciation and amortization would be 18 percent lower in the third quarter than it had forecast.

Penn has more cash than most of its rivals, bolstered by about $1.48 billion in new funds from an abandoned takeover by Fortress Investment Group LLC and Centerbridge Partners LP, who scrapped their $6.1 billion buyout plan in July.

``There's almost nothing that's attractive in gaming right now, even at the prices they're trading at,'' said Forst. He recommends buying Penn because it can ``take advantage of distressed sales.'' He has ``hold'' ratings on MGM and Sands and recommends selling Wynn.

(Credit: Bloomberg)

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