Bottom In Las Vegas Gaming Could Be Difficult To Pin Down
07 Maio 2009 - 11:38AM
Dow Jones News
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.)