MGM Resorts (MGM) Tops Q1 Earnings, Misses On Revenues

MGM Resorts International (NYSE:MGM) posted mixed results for the first quarter of 2016, wherein its earnings outperformed the Zacks Consensus Estimate, but revenues missed the same.

Performance in Las Vegas and regional resorts improved. However, MGM China continued to underperform due to weakness in Macau, a key operating region for the company.

Earnings and Revenue Discussion

MGM Resorts posted earnings of 16 cents per share which beat the Zacks Consensus Estimate of 13 cents by 23.1%. Reported earnings, however, declined 38.5% from the year-ago quarter.

On the other hand, total revenue of $2.21 billion missed the Zacks Consensus Estimate of $2.31 billion by 4.4% and declined 5.2% year over year. The downside reflects a significant decline in revenues from MGM China. The company owns 51% of MGM China Holdings Limited, the owner of MGM Macau resort and casino, and is developing a gaming resort in Cotai.

Gambling revenues in Macau were sluggish throughout the first months of the quarter as high-stake gamblers have been reducing their spending amid the ongoing economic weakness in China. The region has also struggled due to the Chinese government’s anti-graft corruption drive, which has reduced footfall at the casinos. Also, credit growth concerns, tighter restrictions on visas and a partial smoking ban in casinos have impacted revenues in the region.

Gross gaming revenues in Macau declined throughout the quarter.

Other companies that are bearing the brunt of a weak gambling business in Macau include Las Vegas Sands Corp. (NYSE:LVS) , Wynn Resorts Ltd. (NASDAQ:WYNN) and Melco Crown Entertainment Ltd. (NASDAQ:MPEL) .

Adjusted property EBITDA at MGM Resorts’ wholly owned domestic resorts was $485 million, up 24% year over year. The Profit Growth Plan that commenced in Jul 2015 is apparently paying off, reflected by improving profits.

MGM China

MGM China net revenue plunged 26% year over year to $469 million due to lower revenues from both VIP gamblers and main-floor table games.

Main-floor table games revenues dropped 8%, while VIP table games revenues plunged 41% due to a lower VIP table games turnover of 34%. However, the hold percentage contracted 30 basis points (bps) year over year to 3%.

MGM China’s adjusted EBITDA tanked 23% to $114 million due to weak sales.

Domestic Operations

MGM Resorts owns and operates several properties in Las Vegas. Apart from this, it has a number of assets in Mississippi and Michigan.

Net revenue at wholly owned domestic resorts was up 3%. Excluding Circus Circus Reno, Railroad Pass, and the company's properties in Jean Nevada that were sold in 2015, revenues grew 4%. Casino revenues from wholly owned domestic resorts improved 4% due to higher table games revenues.

Table games hold percentage was 22.4%, up 230 bps year over year. Room revenues climbed 7%, primarily attributable to an 8% rise in Las Vegas Strip RevPAR and a 6.6% increase in average daily rate.

Food and beverage revenues were up 1.8% supported by an improvement in the convention and banquet business. Meanwhile, Entertainment revenues dropped 6.1% owing to lower revenues generated from in-house shows.

Operating income at the company's wholly owned domestic resorts surged 33%.

Management and other operations generated revenues of $121.4 million, down 2.3% year over year.

Income from Unconsolidated Affiliates – CityCenter Holdings

MGM’s urban complex, CityCenter (located in Las Vegas, with 50% owned by the company), operates through two segments – Resort and Residential. Under the Resort operations, the company has four properties, namely Aria, Crystals, Vdara and Mandarin Oriental.

Net revenue from CityCenter declined a marginal 0.2% year over year to $301.5 million. Adjusted EBITDA jumped 22.9% to $91 million.

MGM Resorts presently has a Zacks Rank #3 (Hold).