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MGM Resorts (MGM) Announces Job Cuts, Aims to Boost Earnings

Zacks Equity Research

MGM Resorts International MGM has reportedly followed up on its prior plans of job cuts. Per a report by Associated Press, the company has announced that it is completing 779 employee layoffs, most of which will be from its Las Vegas operations.

In April, MGM Resorts announced the first phase of job cuts, which was aimed to control costs and improve operational efficiency. The company lay off 254 employees and cut labor costs by $100 million.

The move resonates with MGM Resorts’ consistent effort to reduce costs of operations as well as boost earnings and returns. Due to high costs of operations and debt burden, shares of MGM Resorts have lost 20.3% in the past year compared with the industry’s 30.6% decline.

 

Rationale Behind the Move

The company resorts to employee layoff to counter high expenses that characterizes the industry. In order to cut costs effectively, MGM Resorts conceived a growth initiative — MGM 2020 — in January and has been following up on that plan. The plan, if executed efficiently, will deliver $200 million of EBITDA in 2020. In fact, MGM Resorts expects to deliver strong performance in the second half to 2019 and gain financial benefits from MGM 2020. The company also continues to focus on reducing consolidated net leverage to 3-4 times by the end of 2020.

Under the MGM 2020, the company aims to gain $100 million from labor costs savings. Of the total amount, $80 million will be saved from fixed labor and $20 million in variable labor. The company is also optimizing revenue streams and expects to generate $50 million.

Our Take

We believe that MGM 2020 will support MGM Resorts’ domestic operations, where the majority of labor cost control is taking place. The company is focusing on its domestic operations that have huge profit generating opportunities. At its Las Vegas operations, revenue per available room (RevPAR) increased 3.7% in the first quarter.

Also, job layoffs will help the company to reduce total operating expenses. In the first quarter of 2019, total expenses increased 14.1% year over year. The company also needs to cut on its general and administrative expenses to boost margins and earnings. In the first quarter of 2019, general and administrative expenses increased 25.7% year over year.

Zacks Rank & Stocks to Consider

MGM Resorts currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the industry include Century Casinos CNTY, Las Vegas Sands LVS and Super League Gaming SLGG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Century Casino and Las Vegas Sands’ current-year earnings are expected to increase 236.4% and 3% respectively. For 2020, Super League Gaming’s earnings is expected to rise 21.3%.

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