MGM Mirage Reports 35% Drop in Profit - TheStreet

MGM Mirage Reports 35% Drop in Profit

The company might have met expectations if not for the closure of the Siegfried and Roy show.
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Updated from 11:52 a.m. EDT

Two weeks after a tiger attack forced the closure of

MGM Mirage's

(MGG)

signature attraction, the Siegfried and Roy magic show, the hotel and casino chain continues to reel, announcing a 35% decline in third-quarter results.

MGM Mirage on Tuesday posted earnings of $54.9 million, or 36 cents a share, which missed the 37 cents a share expected by analysts and came in well below the year-ago profit of $84 million, or 52 cents a share. Revenue came in at $990 million, up 4% from last year, but lower than the $995 million expected by analysts.

The company might have met expectations if not for the closure of the Siegfried and Roy show, which was caused after an onstage tiger attack left magician Roy Horn in critical condition. The company said this impacted earnings by a penny a share. Tuesday's announcement comes about a month after MGM told Wall Street that earnings would come in near 35 cents a share as rivals in both the casino and hotel space were talking up a recovery.

Using generally accepted accounting principles, or GAAP, earnings came in at 31 cents a share, including the results of discontinued operations, down from 43 cents a year ago.

Shares in MGM ended down 66 cents, or 1.8%, at $35.54, which values one share of the company at 20 times 2004 earnings.

While the quarter was weaker than expected, MGM posted solid results in its noncasino businesses, with hotel revenue up 8% on the year. Occupancy came in at 92%, with revenue per available room, a critical metric known as revpar, coming in at $107, up from the year-ago $99. Spending on food, beverages and entertainment rose 9% on the year, aided by the addition of Cirque Du Soleil's "Zumanity" show and a new Irish pub in its New York, New York property.

Room rates may have been higher, but one reason why earnings were not was that interest expenses, gambling losses and higher costs ate away at profits. For the quarter, the company, which has a heavy debt burden to service, lost $86 million due to interest expense vs. $69.2 million a year ago. In addition, the company specifically said earnings were impacted by a lower table hold, which is the amount casinos take in from gamblers.

Another factor was MGM Mirage's renovation plans, which reduced the number of rooms at Bellagio by 9% and caused the company to book higher depreciation expenses after upgrading its slot machines. Furthermore, the company spent more than $10 million in start-up costs for its new Borgata casino in Atlantic City and a makeover for New York, New York.

Going forward, the hotel and casino chain said it was comfortable with its fourth-quarter earnings estimate of 28 cents a share, and company management said that business trends were improving.

"We saw solid business levels in the key national high-end customer segment," said Terry Lanni, MGM Mirage chief executive. "We expect that the upcoming convention and holiday season will likely provide further data to support the recent positive trends."