July 2, 2003 - Major gaming operators in Las Vegas had a tough second quarter with combined net income down 28 percent compared with the year before, Wall Street estimates show. 

The top six operators combined are expected to post net incomes totaling $246 million, down from $341 million in the just ended second quarter of 2002, data compiled by Fulcrum Global Partners indicate. 

The top six casino companies are Park Place Entertainment Corp., MGM Mirage, Harrah's Entertainment, Mandalay Resort Group, Station Casinos and Boyd Gaming Corp. 

Also for the just-concluded second quarter, estimates indicate combined cash flow dropped to $1.1 billion, down 6 percent from $1.2 billion in the same period a year earlier. Cash flow is generally defined as earnings before interest taxes, depreciation and amortization. 

Revenues tumbled to $4.2 billion, down 4 percent from $4.4 billion in the year-ago second quarter. 

Fulcrum gaming analyst Joe Greff said results from different markets, including Las Vegas, are mixed. 

"Where we are in Las Vegas is still down, but not as bad as we thought it would be a couple of months back," he said. 

Atlantic City in June proved stronger than April, which should pull performance ahead of recent expectations, Greff said. And overall, improvements in May and June, especially in terms of room rates, are balancing out weakness in April caused largely by the war with Iraq, he said. 

Deutsche Bank analyst Marc Falcone said second-quarter earnings estimates are proving slightly better than expected. 

"Good room rate trends in late May and June should help offset weaknesses in April. Still, expectations were very low following guidance" from the companies and the impact of the war with Iraq, he said. 

Furthermore, the improvements in May and June have "firmed up" and suggest further improvement heading into the third quarter, Falcone said. 

"We're definitely over the weakness in terms of pressure from the war, SARS and the fear of travel (in terms of hotel operations). Still, we'd like to see some strength out of the table business to complement the strength we're seeing in room rates," he said. 

Only Mandalay Resort Group (estimated second-quarter net income of $39 million, up 34 percent) and Station Casinos (estimated net income of $13 million, up 19 percent) showed improvements in second-quarter income compared with the year before. 

Fulcrum's Greff said room rates in Las Vegas, which are beginning to improve, are good news for Mandalay, which he said is highly leveraged to the Strip and the most sensitive operator to fluctuations in room rates. 

Station Casinos, which emphasizes the local market, is benefiting from the growth dynamics of Las Vegas, and is in a position to continue its growth based on its "attractive development pipeline." 

Park Place, by contrast, slipped the most in the second quarter, with estimated net income of $43 million, down 55 percent from net income of $96 million the year earlier. 

"In general, we believe that there are ample opportunities for Park Place to reduce its operating expenses, improve efficiencies and enhance its return on invested capital," Greff said. "However, we believe these opportunities, at least in the near-term, are mitigated by competitive pressures in its key markets, which, in our view, should preclude meaningful multiple (stock price) expansion." 

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