NEW YORK (TheStreet) -- Atlantic City may be on the verge of going bust due to casino overcapacity and new regional competition, but gambling in Las Vegas is hot. That is, for some companies.
Boyd Gaming (BYD), which operates nine hotels and casinos in Las Vegas, in addition to having a 50% membership interest in Atlantic City's Borgata, is an example of competitive pressures overshadowing a recovering gambling backdrop in Las Vegas. Investors should be particularly concerned.
Boyd Gaming posted adjusted earnings per share of 5 cents a share, or 3 cents below Wall Street consensus expectations as compiled by Bloomberg. The disappointing results were fueled by revenue and adjusted operating income declines at the company's Las Vegas Locals and Downtown (Vegas) segments, which theoretically should be partaking in the region's recovery.
Management signaled the situation is unlikely to reverse course in the near-term. Boyd Gaming lowered its full year adjusted operating income guidance to a range of $580 million to $600 million from $600 million to $620 million, citing weakness in casual play games and a "tough" operating environment.
Las Vegas Sands', on the other hand, reported hotel average daily room rate (ADR) increased a strong 8.8% in the second quarter, with revenue per available room (RevPar) increasing 6.9%. Gambling revenue was relatively flat year over year at $104.3 million.
Boyd's second-quarter performance runs counter to trends in the Las Vegas gaming market. In June, Las Vegas strip gambling proceeds spiked 22%, accelerating from 17.3% and 3.19% increases in May and April, respectively, according to Bloomberg data. Gaming revenue statewide in Nevada increased 14% in June, almost two times that of May, and far removed from April's 0.3% drop.
The resurgence of gambling revenue in the state could partially be attributed to the attraction by consumers to room renovations by the likes of Las Vegas Sands (LVS) and Caesars Entertainment (CZR) as well as investments being made in new celebrity-chef inspired dining experiences and promotions. However, at the center of this renewed interest in gambling in the state is the recovering health of the Las Vegas economy.
Although construction jobs, a key driver of gambling in Nevada, remain some 62% below the peak of 2006 per Bloomberg, the 2014 annualized gain for the sector's employment count has tallied 14%. The Las Vegas unemployment rate peaked in July 2010, and non-farm payrolls have improved sequentially in four of the past five months.
All of this stands in stark contrast to Atlantic City, where announced closures of Showboat Casino, Trump Plaza, and potentially Revel, have been dominating the headlines. Revenue for Atlantic City has declined for seven straight years, falling to $2.8 billion in 2013. With high overhead, greater regional competition and burdensome interest payments, Atlantic City's casino owners simply are unable to achieve and sustain profitability.
Along with the casino closures will come mass layoffs. The city's casinos account for about half of Atlantic City's jobs, or 5,883 jobs out of a total 13,500. With these layoffs imminent, a 14.9% jobless rate, more than two times the national average, in Atlantic City looks set to spike.
Boyd Gaming is the owner of the third worst-performing stock year to date (-0.4%) among its peers MGM Resorts International (MGM) (+15.3%), Wynn Resorts (WYNN) (+16.44%), Las Vegas Sands (-6.04%), and Penn National Gaming (PENN) (-24.58%). Shares of Boyd Gaming fell 2.4% in after-hours trading following the earnings release and lowered full year profit guidance.