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Penn National (PENN) Q2 Earnings Top, Revenues Lag Estimates

Zacks Equity Research

Penn National Gaming, Inc. PENN reported mixed second-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Notably, the top line missed the consensus mark in four of the trailing five quarters. Following the quarterly results, shares of the company declined 2.2% on Aug 1.

Adjusted earnings came in at 44 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Net revenues totaled $1,323.1 million, which lagged the consensus mark of $1,328 million but surged 60% from the year-ago quarter number.

The Northeast segment reported revenues of $599.1 million, up 28.8% year over year. At the West, Midwest and South segments revenues came in at a respective $164.3 million, $268.2 million and $282.2 million, up 63%, 42.5% and 350.6% year over year. Meanwhile, the Other segment reported revenues of $9.4 million, down 6.9% year over year.

Let us take a closer look at the numbers

Inside the Headlines

Penn National’s income from operations in the second quarter totaled $198.4 million, up from $181.8 million registered in the prior-year quarter. Adjusted EBITDAR increased 64.5% from the year-ago quarter to $406.5 million. Also, adjusted EBITDA margin expanded 80 basis points to 30.7%.

Meanwhile, the traditional net debt ratio was 2.67x, and net leverage including master lease obligations came in at 5.8x.

Penn National Gaming, Inc. Price, Consensus and EPS Surprise

Penn National Gaming, Inc. Price, Consensus and EPS Surprise

Penn National Gaming, Inc. price-consensus-eps-surprise-chart | Penn National Gaming, Inc. Quote

Other Financial Information

At the end of the second quarter, cash and cash equivalents decreased to $378.8 million compared with $479.6 million at the end of Dec 31, 2018. Further, the bank debt as of Jun 30, 2019, were $2,056.1 million, up from $1,907.9 million at the end of Dec 31, 2018.

Third-Quarter and 2019 Guidance

For the third quarter, net revenues are expected to be $1,370.5 million, reflecting a 73.5% improvement from the year-ago quarter. Full-year revenues are anticipated to be $5,338 million, up from the previously anticipated $5,173.1 million. Revenues are projected to rise 48.8% year over year.

Adjusted earnings for the third quarter are predicted to be 42 cents compared with 38 cents registered in the prior-year quarter. Meanwhile, earnings for 2019 are anticipated to be $1.57, up from prior estimate of $1.36. In 2018, the company reported earnings of 93 cents.

Other Developments

Penn National, which is in the process of integrating Pinnacle properties, has provided an update on the cost synergies. It expects to achieve at least $120 million (up from the prior estimate of $115 million) of cost synergies by 2020 end, with at least $60 million in 2019 and $65 million by 2020.

Penn National also added that the acquisition of Greektown’s operations, valued at $300 million, will help drive its business.

Moreover, the company’s development projects in Pennsylvania, which include the $120 million Hollywood Casino York and the $111 million Hollywood Casino Morgantown, are on track.

These apart, Penn National has reached a multiyear agreement for online sports betting with DraftKings, PointsBet, theScore, The Stars Group and iGaming.

Zacks Rank & Key Picks

Penn National, which shares space with Boyd Gaming Corporation BYD, currently has a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the same space include Melco Resorts & Entertainment Limited MLCO and Zynga Inc. ZNGA, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Melco Resorts & Entertainment and Zynga have an impressive long-term earnings growth rate of 22.1% and 15%, respectively.

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