Bottom In Las Vegas Gaming Could Be Difficult To Pin Down
By A.D. Pruitt, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Lady Luck is returning to Sin City.
At least that's the spin by the major Las Vegas casino operators this week that reported better-than-expected earnings. However, Wall Street analysts say it's too soon to call a bottom for one of the most brutal downturns in the casino industry as visitation remains low and balance-sheet concerns linger for MGM Mirage (MGM) and Las Vegas Sands Corp (LVS).
"I have not seen any evidence of a bottom," said Dennis Forst, an analyst at KeyBanc Capital Markets.
While double-digit percentage declines in revenue per available room, or revpar, and visitation to Las Vegas casinos can't go on forever, "I expect the trough to be a long U-shaped [one]," he said. Forst added that it's "optimistic" to expect that 2010 will be materially better than this year.
MGM Mirage and Las Vegas Sands indicated on conference calls this week that Las Vegas' losing streak may soon be over. "The trend upwards has been established already to a smaller degree, but we hope that [it] accelerates" after the summer, Sands Chief Executive Sheldon Adelson said during an earnings call Tuesday.
Adelson's comments reinforced a bullish tone set by MGM Mirage Chief Executive Jim Murren on Monday.
"We're not out of the woods yet by any stretch in this market, and we don't want to give false hope or expectations, but we think we've seen the worst of what's happening here," Murren said on a conference call.
Investors took note. Casino stocks roared higher Monday and Tuesday before giving way to profit-taking Wednesday.
All three stocks gained at least 9% Monday and at least 16% Tuesday.
Concerns about unsustainable debt burdens and severe declines in consumer spending have ravaged casino stock values of the industry titans. MGM Mirage, Las Vegas Sands and Wynn Resorts lost around 83%, 94% and 61%, respectively, in 2008. Such losses occurred amid broader equities-market declines, with the S&P 500 index losing roughly 38% last year.
MGM Mirage said during its call that the pace of convention cancellations has slowed in the last couple of months and that business volumes and customer activity and spending were improving.
"There are people around, [but] it's hard to tell what the spend per visit looks like ... that's the trick," said Bill Lerner, a gaming analyst at Union Gaming Group. "So, you got to take that commentary at face value."
While Las Vegas continues to struggle amid rising unemployment and a painful recession, regional casinos in America's heartland have stabilized because they aren't as vulnerable to the weakness in nongaming areas such as lodging, fine dining and air travel.
The consumer trends in Las Vegas may be picking up, but the casino operators still have balance-sheet issues to reconcile. "I think it's probably more important to watch the balance sheet than the income statement," said KeyBanc's Forst.
MGM Mirage, controlled by billionaire investor Kirk Kerkorian, is struggling to pay down more than $14 billion in debt and is considering selling off properties to raise enough cash to meet looming obligations.
Sands has halted work on some projects, and reportedly is considering the sale of some of its Macau casino operations and shopping malls to boost liquidity. The company told the South China Morning Post on Thursday that it plans to deepen cost-cutting measures to save US$470 million a year.
-By A.D. Pruitt, Dow Jones Newswires; 201-938-2269; angela.pruitt@dowjones.com
(Tamara Audi from The Wall Street Journal contributed to this story.)
(END) Dow Jones Newswires
05-07-091023ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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