Wednesday, January 29, 2003
Copyright © Las Vegas Review-Journal

MGM MIRAGE FOURTH QUARTER: Revised earnings mark met

Table-game market decline spurs change in guidance

MGM Grand roulette dealer Toby Radice releases the ball Tuesday afternoon. On Tuesday, MGM Mirage reported fourth quarter earnings in line with downward-revised forecasts. Photo by Clint Karlsen. "The economic recovery in the United States is still a work in progress." TERRY LANNI MGM MIRAGE CHAIRMAN

Sometimes a big improvement just isn't enough.

That was the case for Strip powerhouse MGM Mirage's fourth quarter, which ended Dec. 31 and benefited from easy comparisons to the depressed post-Sept. 11 quarter of 2001.

A decline in the company's industry-leading domestic table game market along with worse-than-normal table game luck forced the company earlier this month to revise downward its earnings guidance to 25 cents per share from 39 cents.

On Tuesday MGM Mirage reported fourth quarter income of $39 million, or 25 cents per share, compared with $23.7 million, or 15 cents per share, a year earlier.

"The fourth quarter proved that we are still in a challenging environment and that the economic recovery in the United States is still a work in progress," MGM Mirage Chairman Terry Lanni said in a statement.

The company's operations are sound and its strategy is working, said McDonald Investments casino industry analyst Dennis Forst, who said the fourth-quarter disappointment was an aberration.

"They didn't do well with domestic high-end play and they didn't play lucky," Forst said. "That doesn't change the company's (long-term fundamentals)."

Quarterly revenue rose 10.5 percent to $982.7 million from $889.7 million, while expenses were up 8.3 percent, to $846 million from $781.3 million.

Operating cash flow was up 14.8 percent, to $262 million from $228.2 million. Operating cash flow, defined as earnings before interest, taxes, depreciation and amortization, is a widely used gauge of casino-industry profitability.

Mark Greenberg, who manages Invesco's Leisure Fund, said MGM Mirage results have been, and will likely continue to be hurt by prospects for war and terrorism as well as a lagging national economy.

"People were coming (to MGM Mirage properties), but it's not clear if (MGM Mirage's worse-than-hoped-for results) are because the right people didn't come, or if they came but gambled a lot less, " he said.

Investors looking to make buy-sell decisions about MGM Mirage and other Strip casino operators don't know what the future holds on the international front, just as prospective casino customers are wary of spending in turbulent times, Greenberg said.

"I don't think there's any way to know what's going to happen," he said. "You can imagine the conversations a lot of families are having. 'Honey, maybe we should spend a bit less,' or 'Let's postpone our trip,' might be comments you'd hear at a family's dinner table."

Lanni said the company will carefully monitor the uncertain economy and international situation, but believes MGM Mirage is well-positioned to take advantage of a hoped-for economic rebound.

"We remain alert to global and national conditions which could have a short-term impact on leisure travel," he said.

MGM Mirage executives cited several 2002 accomplishments, including:

• Introducing new technology, including International Game Technology's EZ-Pay ticket-based slot system and the MGM Mirage Players Club slot club affinity card.

• Announcing a $375 million Bellagio expansion, including a 925-room Spa Tower.

• Spending $295 million on capital projects.

• Repaying $314 million in company debt.

• Repurchasing 4.4 million shares of company stock.

Year-end comparisons were more challenging than the quarterly change, as almost nine months of post-Sept. 11 operations were compared with the three-plus months of post-terror attack operations in 2001.

MGM Mirage 2002 net income was up 72.2 percent, to $292.4 million from $169.8 million.

Annual revenue was up 1.5 percent to $4.03 billion from $3.97 billion, while expenses fell to $3.3 billion from $3.38 billion, a 2.5 percent drop.

Cash flow jumped 8.4 percent, to $1.23 billion from $1.13 billion.

Thomson/First Call surveyed 20 brokers who cover MGM Mirage; the brokers projected the company would report fourth-quarter earnings of 25 cents per share, estimates made after the company trimmed guidance to the 24 to 27 cents per share range.

MGM Mirage shares rose 65 cents, or 2.51 percent, Tuesday to close at $26.50 on the New York Stock Exchange.