Gaming Industry: Performance Review, Summer 2013
Since our last report in Gaming & Leisure Magazine, gaming stocks continued to press north with three consecutive months of increase. Consistent with our last report, every gaming operator and gaming equipment manufacturer included in the Applied Analysis Gaming Index (AAGI) experienced a rise in valuation from three months prior. Additionally, stock prices remain well ahead of where they stood one year ago. The increased investor demand is sourced to improvements in the broader markets, additional insight from first quarter earnings report cards, balance sheet deleveraging and the continued evolution of Internet-based gaming.
The AAGI gained 41.6 points (9.1 percent) since the February 2013 report, reaching a composite index score of 499.38 at the close of May 2013. This reflects the highest index value since September 2011. The broader equities markets are also rallying as the S&P 500 (when computed on a similar basis) is up 8.4 percent during the comparable period.
The last couple of months have included earnings reports for gaming operators and gaming manufacturers. While some of the results were mixed, investor interest has remained relatively strong. Boyd Gaming (BYD) posted the largest period-to period gain with its stock price nearly doubling.
Caesars Entertainment (CZR) witnessed a 38.4 percent jump in pricing, while Pinnacle Entertainment (PNK) was up 36.8 percent. Selected highlights of recent events and the latest earnings season follow.
Wynn Resorts (WYNN) reported net revenues of $1.4 billion during the first quarter of 2013, up 5.0 percent from a year ago. Adjusted EBITDA increased 15.5 percent to $451.1 million. The company attributes the latest performance to a 4.4-percent revenue increase in Macau and a 6.6 percent increase in Las Vegas. Wynn’s Las Vegas properties reported net revenues of $386.6 million during the period, up 6.6 percent when compared to the same quarter a year ago, while adjusted EBITDA increased 19.3 percent to $120.4 million. EBITDA margin was 31.1 percent, up 3.3 percentage points from last year.
Gaming revenues in Las Vegas increased 11.8 per cent year-over-year to $176.3 million, partially attributable to a win percentage of 26.7 percent, which is above the company’s expected range of 21 percent to 24 percent. Non-gaming revenue growth was partially offset by a decline in entertainment revenue, which fell 28.3 percent due to a show that ended its run at the Encore theatre.
Macao Key for Sands
Net revenues for Las Vegas Sands (LVS) increased 19.5 percent year-over-year in the first quarter of 2013 to $3.3 billion, while adjusted EBITDA increased 9.4 percent to $1.2 billion. The latest results are primarily attributable to record results at the company’s Macao properties.
In Las Vegas, net revenues increased 7.0 percent to $411.5 million, due to increases in each of the revenue sources. Room revenues increased 6.8 percent annually to $121.1 million, due to a 7.3-percent increase in revenue per available room (“RevPAR”) to $191. Although ADR declined 1.4 percent to $211, the RevPAR growth during the quarter was driven by an occupancy rate of 90.3 percent, up 690 basis points (6.9 percent) from a year ago. Meanwhile, adjusted EBITDA in Las Vegas declined 2.1 percent to $113.4 million, while EBITDA margin fell 250 basis points (2.5 per cent) to 27.6 percent.
Caesars Visitation Slips
Caesars Entertainment (CZR) reported net revenues of $2.1 billion in the first quarter of 2013, down 2.9 percent from a year ago. Property EBITDA declined 12.4 percent to $487.4 million. The company notes the latest performance is attributable to declines in the number of visitors to its properties.
In Las Vegas, net revenues declined 2.6 percent to $751.7 million, while property EBITDA fell 6.3 percent to $197.9 million. Casino revenues fell 5.7 percent year-over-year, while hotel revenues declined 3.4 percent, due to a 1.1-percent decline in average daily room rate (“ADR”) and a decline in occupancy rate of 140 basis points (1.4 percent). Food and beverage revenues increased 8.2 percent during the quarter, due to new restaurant openings, including Bacchanal Buffet and Nobu at Caesars Palace and Gordon Ramsay-branded restaurants at Caesars Palace, Paris and Planet Hollywood. The company notes that its operating results in Las Vegas were negatively impacted by Project Linq construction costs and renovations at the Quad and Bill’s Gamblin’ Hall & Saloon.
Penn Grows, Barring East/West
Penn National (PENN) reported net revenues of $798.2 million in the first quarter of 2013, up 8.4 percent compared to the same quarter a year ago. Adjusted EBITDA increased 10.0 percent year-over year to $220.7 million. Both of the major revenue sources for the company reported increases during the quarter. Gaming revenues reached $717.9 million, up 9.4 percent from a year ago, while food, beverage and other revenues increased 7.9 percent to $121.9 million.
Despite overall revenue and EBITDA growth, the East/West segment, which includes M Resort, reported dramatic declines in net revenues and adjusted EBITDA. Net revenues for the region were $317.0 million in the first quarter, down 14.5 percent from a year ago. Adjusted EBITDA fell 12.7 percent to $92.5 million.
Peninsula Boosts Boyd
Gaming Net revenues for Boyd Gaming (BYD) were $737.0 million during the first quarter of 2013, up 16.4 percent from the first quarter of 2012. Adjusted EBITDA increased 22.2 percent to $163.5 million. The recent acquisition of Peninsula Gaming helped to expand the revenue base.
In Las Vegas, the Locals’ Market reported net revenues of $152.8 million, down 1.3 percent compared to the same period a year ago. Adjusted EBITDA reported a year-over-year increase for the first time in over a year, rising 1.9 percent to $39.2 million. The company notes that the market’s latest performance was attributable to new slot and marketing initiatives as well as a focus on operating margins. In addition, the company witnessed strong visitation to its properties as a result of the West Coast Conference basketball championship at the Orleans Arena and its sponsorship of the Las Vegas NASCAR race in March.
Bally Technologies (BYI) reported net revenues of $259.1 million during the company’s fiscal third quarter of 2013, up 13.3 percent from the prior year period. Adjusted EBITDA was $85.0 million, up 14.2 percent from last year. Each of the major sources of revenue reported year-over-year increases during the period. Gaming equipment revenues increased 8.2 percent to $85.8 million, due to an increase in domestic replacement sales. The average selling price of new gaming devices declined 6.0 percent to $16,051 during the quarter, but new-unit sales increased 18.7 percent to 4,923. Gaming operations revenues increased 10.3 percent year-over-year to $102.0 million as a result of a 73-percent increase in the installed base of WAP games. Meanwhile, systems revenues reported the greatest year-over-year increase, rising 25.5 percent to $71.3 million, partially attributable to a 17.0-percent increase in maintenance revenues.
WMS Posts Mixed Revenue Growth
Net revenues for WMS increased 1.1 percent year over-year in the company’s fiscal third quarter of 2013 to $177.9 million. The latest performance is attributable to a 21.9-percent increase in gaming operations revenues, which was partially offset by an 11.2-percent decline in product sales revenues. The latest period represents the third consecutive quarter in which gaming operations revenues have reported year-over year growth. Product sales revenues fell from $110.6 million to $98.2 million during the quarter. The average sales price per new unit reported little change year-over-year, increasing a modest 0.7 percent to $15,344. In addition, total unit shipments fell 12.9 percent to 6,323. The latest performance is attributable to a 21.3-percent decline in new unit shipments to the U.S. and Canada and a 16.3-percent decline in used unit shipments.
The Applied Analysis Gaming Index (AAGI) is a composite index of major gaming operators and manufacturers. The companies comprising the index are adjusted from time to time based on market activity, consolidation, privatizations and other factors. The index itself is a composite of stock prices, weighted by market capitalization and is based on a 100-point valuation as of January 1998. Contributions to the index of merged companies include predecessor companies.
Brian Gordon is a principal with the Nevada based advisory services firm, Applied Analysis. Gordon has extensive gaming and leisure experience from both an accounting/finance and operational perspective.