Atlantic City Drags Trump to a Miss

The N.J. market weighs heavily on revenue as the casino company posts a wider-than-expected quarterly loss.
By Nicholas Yulico ,

Trump Entertainment

( TRMP) continues to face headwinds in the Atlantic City market, where competition from nearby states is pressuring slot revenues in the city and hurting Trump's margins as the company increases promotional expenses.

Trump -- which I flag as overvalued in the Bricks and Mortar portfolio -- said Thursday that first-quarter revenue fell 3% from a year ago to $227.6 million -- near analyst estimates. However, Trump reported a wider-than-expected loss, which amounted to 59 cents a share, compared with the 42-cent loss analysts expected, according to Thomson Reuters.

Trump shares plunged 8.5% to $2.48 in recent morning trading.

The miss was due to poor profit margins at the company's three casinos in the Atlantic City market. EBITDA margins fell to 11%, compared with 15% a year earlier.

Trump blamed decreased slot handle at Trump Marina and weak table hold percentage at several properties for the results.

The Trump Marina, which is popular with older visitors and families, reported a paltry 5% EBITDA margin, down from 14% a year ago.

At the Taj Mahal, table game hold percentage -- the amount of bets that the casino wins -- fell 220 basis points.

Promotional expenses across the casinos increased to 23% of gross revenue, up from 21% a year ago.

"We are currently facing a business environment that is experiencing the effects of general economic weakness and rising gas prices, as we near the busy summer months and look towards the implementation of the full smoking ban in October," Trump CEO Mark Juliano said in a statement.

Even with the stock trading more than 85% down from when I first flagged it as overvalued in January 2007, I believe Trump remains a value trap. Trump's properties are simply not spinning off enough cash flow to find much value in the equity. Stockholders sit below $1.7 billion of debt and minority interests in the capital structure.

While Trump's properties are irreplaceable and could eventually fetch buyout interest, the problematic debt markets today make any potential purchases very difficult. The Atlantic City market is currently facing two major overhangs on the asset side: the bankrupt Tropicana Resort must be sold, and

Pinnacle Entertainment

(PNK) - Get Report

is still deciding whether it can obtain attractive financing to rebuild the Sands into a mega-resort.

In other casino sector news, regional operator

Ameristar Casinos

(ASCA)

was up 4% to $17.83 in morning trading after the company's earnings per share beat Wall Street estimates by 11 cents.

In other mock portfolio news, shares of

Pulte Homes

(PHM) - Get Report

and

Ryland

(RYL)

(two homebuilders I flag as overvalued) fell under pressure after competitor

Hovnanian

(HOV) - Get Report

announced an equity raise that will increase the firm's outstanding shares by at least 20%, resulting in significant dilution to existing shareholders.

Hovnanian shares tumbled 9% to $10.11, Ryland fell 3.6% to $31.30 and Pulte dropped 2.2% to $13.39.

Loading ...