In the past week, Caesars Entertainment Corporation (CZR) posted dismal second quarter results with both earnings and revenue missing the Zacks Consensus Estimate. It also entered into an agreement with bondholders to cut its indebtedness by $548.4 million.
Meanwhile, Caesars Acquisition Company (CACQ) that was formed in Feb 2013 to make an equity investment in Caesars Growth Partners, LLC (CGP LLC), a joint venture between Caesars Acquisition and subsidiaries of Caesars Entertainment, also posted second quarter results.
Century Casinos Inc. (CNTY) posted mixed second quarter results. Its earnings missed the Zacks Consensus Estimate while revenues beat the same. Meanwhile, Monarch Casino & Resort, Inc. (MCRI) completed the first phase of extensive casino redesign and upgraded its Monarch Casino Black Hawk per the plan approved in Apr 2013.
Further, Hong Kong has lowered its economic growth forecast for the year to 2% to 3% from its previous expectation of 3% to 4%. Hong Kong is located about 40 miles from Macau and this revised forecast has clouded the prospects of leading U.S.-based casino operators such as Las Vegas Sands Corp. (LVS), MGM Resorts International (MGM), Melco Crown Entertainment Limited (MPEL) and Wynn Resorts Ltd. operating in the region. (Read last to last week developments: Gambling Stock Round up for Aug 11, 2014)
Recap of the Week’s Important Stories:
1. Caesars Entertainment Corporation posted adjusted loss per share of $2.31 in the second quarter of 2014, which compared unfavorably with the year-ago loss of $1.69 and also the Zacks Consensus Estimate of a loss of $1.24. The downside reflects higher interest expenses incurred by this debt ridden company. Moreover, persistent weakness in Atlantic City and regional markets added to the downside. Though total revenue of $2.19 billion was up 3% year over year, it missed the consensus mark of $2.21 billion by 1%.
In a separate development, the company entered into an agreement with bondholders that would cut its indebtedness by $548.4 million and interest expense by $34 million annually. Per the agreement, bondholders have agreed to sell Caesars’ $89.4 million of 6.5% notes due 2016 and $66 million of its 5.75% debt due 2017. These steps are intended to get rid of the company’s $20 billion of obligations.
Caesars has not been able to post profits for a very long time, failing to recover from its debt load since the recession. The company runs casinos across the U.S., primarily in Las Vegas and Atlantic City. Atlantic City, once East Coast's gambling hub, is currently facing stiff competition after gambling was legalized in neighboring states including Pennsylvania and New York. As a result, several casino operators are withdrawing themselves from the market. Moreover, the company’s failure to acquire a gambling license in Macau has added to the woes.
2. Casino asset and entertainment firm Caesars Acquisition Company posted second quarter earnings per share of 6 cents, down 25% year over year and missed the Zacks Consensus Estimate of 37 cents by 84%.
3. Century Casinos posted second-quarter 2014 adjusted earnings of 1 cent per share that missed the Zacks Consensus Estimate of 6 cents by 83.3%. Further, earnings declined 93% from the year-ago figure of 15 cents per share. The significant downside reflects higher total operating costs and expenses and non-operating expenses.
However, net revenue increased 11% year over year to $31.6 million and also beat the Zacks Consensus Estimate of $31 million by 2%. The upside in revenues reflects 31% and 11% increase in revenues at Casinos Poland and Century Casino, Calgary, respectively. Adjusted EBITDA of $3.2 million was down 18% year over year.
4. Monarch Casino & Resort, Inc.’s, subsidiary Monarch Casino Black Hawk has completed the first phase of extensive casino redesign and upgrade per the Planned Unit Development (:PUD) master plan approved by the Black Hawk City Council in Apr 2013.. Now it includes an all-new granite-top stage bar, which has a 211-inch high-definition video wall. In Sep 2013, the company had introduced a new buffet as part of the redesigning plan.
Completion of the project would nearly double the casino space and will add a 22-story hotel tower with 507 guest rooms and suites, spa and pool facility, four restaurants, additional bars, a new parking structure and associated support facilities. Also, parking spaces will increase from approximately 500 to 1,550.
5. Hong Kong’s economic growth forecast for the year has been lowered to 2% to 3% from its previous expectation of 3% to 4% owing to the slowdown in China. Retail sales in Hong Kong have declined for five straight months through June owing to moderate economic growth in China.
Moreover, the country’s anti-corruption campaign has curtailed tourists’ spending on luxury items. Share price of Las Vegas Sands, MGM Resorts, WYNN Resorts and Melco Crown declined in response as Macau casino resorts rely on tourists from throughout China and nearby Asian countries.
Gambling revenue in Macau, the world's top casino destination, has been witnessing a downside lately. The slowdown can be attributed to the fact that high-stake gamblers are curtailing spending amid a cooling Chinese economy. Further, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on VIP gamblers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.
Given the current choppy environment, a few analysts have lowered their revenue forecasts for the year while lowering their target prices. However, they remain bullish over the long term.
Last week, share prices of Melco Crown and Caesars Acquisition declined 1.2% and 0.7%, respectively, while the rest gained. Boyd Gaming Corporation (BYD) recorded the maximum increase. Over the last six months, all gambling stocks have declined with Caesars Entertainment and Melco Crown Entertainment Limited declining the most at 41.4% and 30%, respectively.
Last 6 months
What’s Next in the Gambling World?
We note that gambling stocks have oscillated between gains and losses in recent sessions and investors can expect such movement in the coming days as well.
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