Thursday, October 24, 2002
Copyright © Las Vegas Review-Journal

MGM Mirage sets profit record

Increase in nongaming revenue, hotel occupancy boosts earnings

Powered by jumps in hotel occupancy and nongaming revenue at its Strip resorts, MGM Mirage on Wednesday reported record third-quarter net earnings of $69.6 million, or 43 cents per share, in the quarter ended Sept. 30.

MGM Mirage reported a loss of $14.4 million, or 9 cents per share in last year's third quarter.

Revenue was up 2.1 percent to $1.12 billion from $1.1 billion and operating cash flow was up 30 percent, to $306.3 million from $236.5 million.

Operating cash flow is defined as earnings before interest, taxes, depreciation and amortization and is a widely used gauge of casino-industry profitability.

The year-over-year comparison benefited from the company's weak 2001 third quarter, which ended with a worldwide travel slowdown following the Sept. 11 terrorist attacks.

Excluding one-time items, MGM Mirage earned 51 cents per share, a performance that beat Wall Street analysts' average estimate of 47 cents per share.

The operator of Bellagio, The Mirage and MGM Grand used a one-time addition of bad-debt reserves to boost earnings.

MGM Mirage boosted the reserves last year in the wake of the post-Sept. 11 tourism slowdown, but credited stronger-than-anticipated debt collection for the decision to reverse an undisclosed portion of its reserve.

The reversal was a prudent move, but one that investors may have perceived as a gimmick used to make sure the quarter beat expectations, Deutsche Banc Securities casino industry analyst Marc Falcone said.

"The accrual reversal was abnormally high, and that may have made investors skittish," Falcone said. "But it's cash, they're not using some noncash item to boost income."

MGM Mirage shares closed Wednesday at $31.15, down $2.26 on the New York Stock Exchange.

MGM Mirage Chairman Terry Lanni was traveling in the Far East and was unavailable to comment or to participate in a Wednesday conference call for investors and analysts, but said in a statement that the company's strong quarter reflects its resilience and the power of its brands and employees.

"Our company is uniquely positioned to build on this momentum as we focus on deploying capital to maximize returns at our existing resorts and pursue new growth opportunities as they materialize," Lanni noted.

Thailand government officials said earlier this week that Lanni was interested in opening a casino in the country, where casino gambling is now illegal.

MGM Mirage President and CFO Jim Murren said the company decided two years ago to concentrate on absorbing Mirage Resorts rather than development opportunities.

After paying down $1.4 billion in debt including $150 million during the quarter and beginning an aggressive stock buyback program that included the purchase of more than 1 million shares during the quarter, Murren said the company's now ready to take advantage of development opportunities.

"We have a very keen interest in the Far East," Murren said. "We think being a leader is being ahead of the pack, and we believe there are all kinds of opportunities, in the U.S., Asia and elsewhere. The good news is, we're really strong just as gaming appears poised to grow."

Acquisitions are also a possibility, he said.

"We have a very open mind, and we're able to move quickly," he said. "You'll see us growing, and we're interested in all kinds of opportunities if something really tasty comes along."

Murren said the company's third quarter reflects two things, Las Vegas' resilience as a city and the power of MGM Mirage properties.

"The city has recovered much more quickly than we anticipated," he said. "But it's no coincidence that we continue to outperform our competition. It all comes down to location, location, location. We've got the best buildings and the best locations."

Falcone said the quarter was a good one, particularly at its core Strip resorts.

"Operating results were pretty strong, especially nongaming revenues," Falcone said.

Companywide, noncasino revenues were up 4 percent, paced by room revenues which were boosted by higher occupancy rates.

Hotel room occupancy was 89.2 percent, compared with 87.7 percent, and the average daily room rate was $97, up $3.

The improved hotel numbers had a positive impact on retail, entertainment, food and beverage revenue, the company noted.

MGM Mirage's Strip properties reported net revenue of $716.9 million and cash flow of $232.2 million, compared with $697.3 million and $157.4 million, respectively.

Driving that performance was Bellagio, MGM Mirage's top moneymaking property, which reported $91.3 million in operating cash flow, its second-best quarter and a 46 percent jump compared with last year's quarter.

"People are willing to pay for quality," Murren said.

MGM Mirage's Primm properties and its Beau Rivage casino in Biloxi, Miss., reported cash-flow declines of 29.1 percent and 2.5 percent, respectively.

The company's MGM Grand Detroit reported a 6 percent cash-flow increase, to $35.1 million.