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

Station revels in higher quarterly profits, foresees more ahead

A record-setting first year at Green Valley Ranch, co-owned by Station Casinos and the Greenspun family, helped fuel an increase in Station Casinos' fourth-quarter earnings Photo by Amy Beth Bennett. Station Casinos co-owns Green Valley Ranch property with the Greenspun family. The casino company gets half of the property's income plus a management fee for operating it. Photo by Amy Beth Bennett.

Station Casinos executives like opening new casinos, but they love what the properties do for the company's bottom line.

Powered by a company record-setting first year at its Green Valley Ranch property, the company on Tuesday announced improved fourth-quarter and year-end results for the periods ended Dec. 31.

But it's the company's next new project, the $215 million Thunder Valley Casino near Sacramento, Calif., that is opening eyebrows.

Station Casinos expects to open the United Auburn Indian Community-owned casino in June, and Thunder Valley is projected to generate about $104 million in net income in six-plus months of 2003 operations.

Those results that would return $25 million to Station as management fees.

And the company expects California Gov. Gray Davis to agree during pending compact renegotiations to allow substantial increases in tribes' slot allocations.

Station Chairman and Chief Executive Officer Frank Fertitta III told Wall Street analysts that the Thunder Valley site compares favorably with Foxwoods and Mohegan Sun in Connecticut, two of the world's top money-making casinos.

"We have a long-term vision of what this property can turn into," said Fertitta, noting that the company owns 100 acres adjacent to the tribal site and an option to buy another 150 acres in addition to its seven-year deal to manage the property. "This thing can grow into one of the biggest and most complete gaming complexes in the country."

"If (Thunder Valley) opens on time, Station should mint money there," said McDonald Investments casino analyst Dennis Forst, noting the Sacramento-area's top-notch demographics and the lack of nearby tribal competition.

Although it was Station's optimistic guidance on future California operations that excited analysts when the company reported fourth-quarter and year-end earnings Tuesday, the company's bread-and-butter Las Vegas locals operations enjoyed a solid quarter and year, bosses said.

For the quarter ended Dec. 31, Station Casinos reported $7.7 million in income, compared with $4.4 million. Income per share jumped to 13 cents from 8 cents.

Revenue was down a fraction of 1 percent to $201.6 million from $202.8 million. The drop was more than offset by cost-cutting efforts, company executives said, as operating expenses dropped 5.3 percent, to $163.1 million from $172.2 million.

Operating cash flow was up 6.4 percent, to $62.9 million from $59.1 million.

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

The company's hotel rooms were 92 percent filled during the quarter, up from 87 percent; average room rates were up 2 percent, to $51.

Propelling the quarterly and yearly performance was Green Valley Ranch, co-owned by Station Casinos and the Greenspun family.

Green Valley Ranch generated $43 million in 2002 cash flow; Station gets half of the property's income plus a management fee for operating it.

Station's cut of fourth-quarter earnings including its management fees was $4.6 million.

"This is the most ever for a Station property in its first year," said Station Chief Financial Officer Glenn Christenson, who said the company's Las Vegas-focused strategy continues to pay off.

"The Las Vegas locals market is still one of the most resilient in the country," Christenson said. "The local economy is starting to build momentum."

Year-end income was $21.1 million, or 35 cents per share, compared with $19.4 million, or 32 cents per share.

Year-end revenue dropped 5.3 percent to $792.9 million from $836.9 million. Operating expenses declined by 8.1 percent, to $642 million from $698.5 million.

Year-end cash flow was $238.8 million, up from $219.2 million. Christenson said the company projects $280 million in 2003 cash flow, not counting the $25 million haul anticipated from Thunder Valley.