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Boyd Gaming executives optimistic after first-quarter profit

In a wide-ranging conference call Tuesday morning to discuss quarterly earnings, executives of Boyd Gaming Corp. predicted a near-term return to year-over-year growth, blamed downtown’s visitation skid partly on CityCenter and low Strip room rates and said they still want to buy assets belonging to bankrupt locals giant Station Casinos.

Boyd turned in a mixed performance in the quarter that ended March 31. But company executives seemed pleased with the numbers, which showed a return to historical seasonal trends, and they said they expect the company to begin posting annual growth in the second half of 2010.

“We’re optimistic about the future of the company,” Boyd President and Chief Executive Officer Keith Smith said. “We’re ideally situated for profitable growth, whether through organic growth or new acquisitions.”

Boyd’s first-quarter profit came in at $8.4 million, or 10 cents per share. That compares with a loss of $13.8 million, or 16 cents per share, in the same quarter of 2009. A Thomson Reuters analyst survey predicted profits of 7 cents a share.

Boyd’s revenue fell 8.4 percent to $398.4 million, down from $434.8 million in the same quarter a year ago. Cash flow, or earnings before interest, taxes, depreciation and amortization, tumbled to $87.4 million, down 20.2 percent from $109.6 million in the first quarter of 2009.

Wall Street expected $92.4 million in cash flow on $409 million in revenue, according to JP Morgan Research gaming analyst Joe Greff.

In the locals market, which includes Sam’s Town, The Orleans, Gold Coast and Suncoast, Boyd’s year-over-year revenue slumped 7.9 percent to $156.6 million, while cash flow dipped 10.8 percent to $40.4 million.

Smith said the results were the company’s strongest in two years.

Added Greff in a note to investors: “(This is) the narrowest year-over-year decline since the downturn began. Our sense is that the slightly better Las Vegas locals performance is what really matters to investors here.”

Still, gaming analysts with investment firm Morgan Joseph said they need to see larger locals-market gains before they believe a turnaround is near.

“We are not saying the Las Vegas economy will worsen,” said the company, which predicted earnings growth for Boyd in the second half of 2010. “We are just not convinced of a meaningful recovery this year.”

Boyd’s California, Fremont and Main Street Station properties downtown saw revenue slip 8 percent to $54 million. Cash flow fell 37.3 percent, to $8.4 million.

Executives blamed the sales dip on and higher jet-fuel costs and having to lower tickets prices for charter flights Boyd runs from Hawaii, a key feeder market for Boyd’s downtown properties. Unpaid furloughs have cut into the paychecks of Hawaii’s state workers, and that’s curbed commercial travel from the islands to Las Vegas as well. There’s also less foot traffic through the Fremont Street Experience, as consumers head to the Strip to check out new attractions such as CityCenter. And low room rates on the Strip have peeled away budget-minded visitors who see a “once-in-a-lifetime opportunity” to stay along the resort corridor, said Paul Chakmak, Boyd’s executive vice president and chief operating officer.

Boyd officials said they expect improvements in the company’s results to continue.

“We are confident that we have the right business model in place in the Las Vegas locals market and are comfortable in our ability to manage the business through the remainder of the economic cycle,” Chakmak said.

Smith added that Boyd is leaner on the expense side than it was pre-recession, and because the company has become more efficient, it should be able to generate “substantial” earnings increases with just moderate revenue gains.

At least some of Boyd’s future growth could come through acquisitions.

As Station’s bankruptcy case proceeded in a Reno courtroom Tuesday, Boyd executives said they still want to buy some of Station’s assets. What happens in court through Wednesday could affect Boyd’s approach to any acquisitions, Smith said. Boyd has made two offers in the past year to acquire all or some of Station’s properties. Boyd officials have said in recent weeks that they’re concerned Station insiders would have an unfair competitive advantage in buying back assets through the bankruptcy process.

“We want acquisitions that fit with our existing business and add shareholder value,” Smith said. “We welcome the opportunity to compete for Station’s assets as long as the process is competitive, open and fair, and the assets have not been devalued to the point where it makes no financial sense for the company (to purchase Station properties).”

Boyd officials also said they have the right of first refusal on MGM Mirage’s 50 percent share of the two companies’ Borgata hotel-casino in Atlantic City. Boyd doesn’t intend now to sell its share in Borgata, but the company will wait and see how the sale process plays out over the next 18 months.

Boyd also owns and operates six casinos in Mississippi, Illinois, Louisiana and Indiana.

Work on the company’s Strip megaresort Echelon, which stopped construction in 2008, hasn’t resumed.

Boyd’s shares fell 29 cents, or 2.15 percent, to close Tuesday at $13.18 on the New York Stock Exchange.

Contact reporter Jennifer Robison at jrobison
@reviewjournal.com or 702-380-4512.

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