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Las Vegas Sands Corp. Message Board

  • bjspokanimal bjspokanimal May 16, 2013 1:20 PM Flag

    The Deception in LVS's Year-Over-Year Numbers

    Reading a motley fool blog this morning, I was struck by something I've seen a lot in low-information articles like that. That something was that even though LVS advanced their top-line revenues in Q1 by 19.5%, they only increased their YOY earnings by 1.4%, from 70 cents to 71 cents.

    The obvious answer, in the eyes of the investment pros that are sustaining LVS's P/E ratio up close to 30x, is that LVS played very lucky in Q1 of 2012... and modestly unlucky in Q1 of 2013 (very unlucky, actually, in Singapore, where gaming volumes actually rocketed by 42% YOY).

    When you "normalize" Q1-12 and Q1-13 for luck (hold), you end up growing EPS year-over-year at a rate of growth that is closer to the growth of revenues... but... it still comes up short of the 19.5% growth in revenues.

    The reason why is because Cotai Central is still ramping up. In fact, it wasn't even fully open until a third of the way through the first quarter, and pre-opening expenses associated with phase 3 were at their peak in early january. The project's revenues were ramping nicely, but it's profits were suffering from outsized expenses being put up against no phase-3 revenues for part of the month.

    Ditto with Cotai Central's massive depreciation expense... an element that wasn't as glaring in the company's EBITDA growth. Most new mega-resorts in macau take 6 to 12 months to fully develop and absorb such overhead... and speaking of Cotai, we can expect that full-development to take much longer than that given the magnitude of growing "critical mass" among all of Sand's cotai resorts. Venetian is STILL underutilized almost 6 years after it opened, but that capacity utilization improves quarterly... and even more with 6,000 new hotel rooms across the street.

    So, for you smart guys on this board without hussein-osama-bengazi-obama in their handle, keep an eye on ALL the YOY metrics. They may not look great, but they sure as he|| look "good".

    Spok

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    • Looks like my "auto-bump" function has stopped working. My iggy button is getting pretty worn-out looking... maybe that has something to do with it ;-)

    • Do you suppose analysts covering LVS are modeling the nuances of higher cost structure on rampup?

      If not, a significant earnings surprise could be coming up, assuming no bad beats.

      • 1 Reply to ipsophakto
      • I think they're plugging those nuances in, and you can see it in the consensus projection of EPS growth throughout 2013. I think they're keeping those projections more conservative than need be, however. 2 reasons: First, they got pretty burned during LVS's "throw-away" quarters last summer and fall and they're trying to buffer for that. Secondly, Analysts usually error on the conservative side... especially when a company's earnings jump around a lot, as LVS's do.

        Remember that analysts prefer to miss on the low side WAAAYY more than they want to risk missing on the high side. The clients of their firms are much less forgiving in the later circumstance.
        Similarly, analysts don't like to assume that much of their firm's client base is going to understand the concept of "normalization", so they'll under-estimate EPS a tad more just to buffer themselves from such neophyte perceptions of what an "earnings miss" actually is, and what it isn't... given the impact of "luck".

        With analysts, I look a lot more closely at their rationale than I do their earnings projections and price targets.... and draw my own conclusions.

        Sometimes, I'll agree 95% with an analyst, but my opinion on earnings will differ substantially...

        ... simply because I have the advantage of not having to temper expectations among his company's herd of less-sophisticated clientele.

        Spok

    • Thanks, BJ. I sure wish more analysts actually knew how to do the math for gaming properties.

      Something else for investors to think about is the enormity of the just the payroll overhead costs required to open one of these resorts let alone 3 more. They have to hire and train a staff of house keepers, waiters, bar tenders, dealers, back room money handlers, security, cooks and chefs to name a few; in country with close to zero actual unemployment means training many from scratch, and get them all ready to open a property that will have 100% occupancy on day #1. A monumental task and cost...

      • 1 Reply to mbablitz
      • That's why it was so impressive that Galaxy Cotai opened so strong a couple years ago. It was a tribute to Venetian that they opened that as strongly as they did in 2007.

        Cotai Central, City of Dreams and 4-seasons all opened more tentatively and took time to ramp... C.C. very much because of it's "phased" opening, was particularly tough EBITDA-wise.

        Worth noting that Sands stuffed more than the usual costs of C.C. into "preopening expenses", which hurt EPS last year but will save them some depreciation expense in the years to come...

        ... again, another impact on they treating last summer and fall as "throwaway" quarters against which YOY comparisons should be excellent.

        Spok

 
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