August 1, 2018 - 8:10 am
Updated August 1, 2018 - 10:46 am
Caesars Entertainment Corp. said third-quarter earnings will be weak as competitors cut Strip room rates, sending shares of Las Vegas gaming companies tumbling Wednesday and wiping out billions in market capitalization.
The announcement spooked investors and overshadowed the company’s strong second-quarter results announced earlier in the day.
Caesars stock tumbled as much as 25 percent, its biggest drop in years, and dragged down shares of MGM Resorts International, Wynn Resorts Ltd. and Las Vegas Sands Corp. Weak Macau gross gaming revenue for July also impacted Wynn and Sands shares.
Caesars forecasts Las Vegas revenue per available room in the third quarter will grow no more than 2 percent as fewer summer events attract people to the Strip. Investors were expecting 5 percent for the third quarter, JPMorgan said in a note.
Caesars CEO Mark Frissora spent much of the conference call trying to calm Wall Street analysts’ concerns about the health of the Las Vegas market.
“I want to be clear, it is not weakness in Vegas, it is a programming issue. This is not some reason to panic or think Vegas is weak. I still think Vegas is a very strong market,” Frissora said.
29 fewer events
The Colosseum at Caesars Palace and the T-Mobile Arena, which is half owned by MGM, will host 29 fewer events in the third quarter compared with the same three months last year, according to Caesars.
Frissora did not explain the reason for the drop in events at the Colosseum. MGM did not respond to a request for comment on the decline at T-Mobile.
T-Mobile last August hosted the Floyd Mayweather Jr.-Conor McGregor boxing match, which brought tens of thousands of visitors to Las Vegas and drove room rates higher.
“In that fight alone, we generated a significant amount of revenues and profit,” Frissora told the analysts. Maddox also said the fight was an “enormous” event for the Strip last year.
There are no major boxing matches scheduled this month.
With fewer visitors this summer, Strip operators are cutting rates room rates to pull in leisure tourists, Frissora said. He didn’t name specific resort operators, but MGM is the largest operator by rooms and can influence Strip room rates.
“There are people on the Strip that are obviously pricing rates at a lower level and we can’t control that,” Frissora told analysts. “For us to keep our occupancy up, we have to meet the competition.”
Las Vegas observers last month discussed on social media how low room rates had fallen at some MGM properties, including at the newly renovated Park MGM.
MGM CEO Jim Murren will address the health of Strip room rates with Wall Street analysts Thursday morning following publication of the company’s second-quarter results.
MGM shares fell nearly 10 percent on Wednesday, reducing the company’s market capitalization by about $1.5 billion. The decline was nearly double the drop following the Oct. 1 shooting.
Strong fourth quarter
Despite the weak third-quarter outlook, Frissora said Caesars is sticking to its full-year forecast of between 4 percent and 6 percent growth in revenue per available room, prompting some analysts to challenge him.
“Going into this third quarter, you had a great deal of confidence, so is it not possible that you are not particularly well booked into the fourth quarter?” one analyst asked Frissora.
Frissora said he has good visibility for the remainder of the year. He said group bookings for September and the fourth-quarter were strong, supporting his view that the July and August weakness was just a “blip.”
Caesars closed down $1.68, or 15 percent, to $9.62, a more than one-year low. The drop knocked off more than $1 billion from the company’s market value.
MGM shares slipped $2.86, or, 9 percent, to $28.51. Shares of Wynn Resorts fell $6.79, or 4.1 percent, to $159.99 while Las Vegas Sands slipped $2.89, or 4 percent, to $69.01.
Caesars Q2 earnings
Earlier in the day, Caesars announced same-store net revenues rose 2.8 percent in the second quarter to $2.12 billion, driven by higher average room rates in Las Vegas and better gaming hold.
Caesars same-store EBITDAR — earnings before interest, taxes, depreciation, amortization and rent — rose 13 percent to $623 million in the second quarter as the company reduced marketing expenses.
The company posted second-quarter net income of $29 million compared with a $1.43 billion loss in the year-ago period that was caused by bankruptcy restructuring charges.
The Review-Journal is owned by the family of Las Vegas Sands Corp. Chairman and CEO Sheldon Adelson.