Updated from 9:37 a.m. EDT

Station Casinos ( STN) shares dropped 5% Tuesday after the casino operator missed analyst estimates for its second-quarter profit and cut its earnings guidance for next year.

But despite recent investor concerns, the company denied that its results are indicative of a slowdown at its Las Vegas casinos, which cater to the local populace.

Station earned $26.8 million, or 44 cents a share, in the latest quarter, compared with $40.6 million, or 58 cents a share, a year ago. On an adjusted basis, the company earned 61 cents per share, down from 66 cents a year earlier. Analysts, on average, expected an adjusted profit of 63 cents a share, according to Thomson First Call. These results exclude nonrecurring items and development expenses, which analysts had also factored out in their guidance.

Station slightly missed the top-line estimate, with revenue of $341.79 million, up from $273.97 million a year earlier. Analysts expected $342.57 million.

Station shares fell $2.90 in afternoon trading to $57. Later on Tuesday, Boyd Gaming ( BYD), the other dominant player in the Las Vegas locals market, will report earnings.

Investors have recently punished Station's stock and that of Boyd Gaming on fears that Station's new Red Rock Casino is creating a very competitive operating market in the Las Vegas locals market.

On its conference call, Station management said the company's revenue miss didn't signal a weak operating environment, but it was simply a matter of not hitting its best attempt at providing estimates.

With regards to recent investor fears of a slowing consumer in Vegas, management said, "We recognize there are some issues that the Street has been concerned about, but so far we haven't seen those concerns manifest in our operations."

As well, margins were huty in the quarter by increased costs at Red Rock Casino, which opened in April. Operating costs tend to be higher when a new casino opens but drop over time, the company noted.

Station Casino management also disputed the idea that a slowing Vegas housing market would crush the stock, as Barron's wrote in a very bearish article over the weekend.

Management told investors on the call that population and job growth continue to be strong in the region, which will continue to prop up home prices. The company highlighted a Las Vegas Review Journal article from last week that said home prices would continue to rise in Vegas through the end of 2006 even though sales have been slowing.

Prices will rise because Las Vegas continues to lead the nation in job growth, which rose 7% in the recent quarter, according to the article. As well, construction expenses continue to rise, and there is a lack of buildable land in the city, which also will prop up home prices, the article noted.

Station maintained its EBITDA guidance for 2007 but cut its EPS forecast to a range of $2.53 to $2.95. Analysts currently expect earnings of $3.01 a share. Higher interest expenses from land holdings and debt brought on to fund more share buybacks continue to drag down earnings, the company said.

Station's previous 2007 guidance, issued in early May, was for earnings of $2.65 to $3.05 a share.

In a research note, Deutsche Bank analyst Bill Lerner, who rates the stock a buy, said the second-quarter miss was exclusively "below-the-line driven and not indicative of a locals market slowdown."

Lerner highlighted that Station maintained its EBITDA guidance for the balance of 2006 and 2007, which, in his opinion, suggests the locals market is robust.