Despite severe flooding affecting its Baton Rouge property, Pinnacle Entertainment reported strong third quarter results Thursday morning, beating Wall Street expectations with $595 million in net revenues and a $0.01 net loss per share.
Revenues were up 2.9 percent year-over-year for the quarter, with the increase coming almost entirely from the newly-acquired Meadows Racetrack and Casino outside Pittsburgh. Adjusted EBITDAR grew 3.7 percent to $155.4 million while EBITDAR margin rose 20 basis points to 26.1 percent.
The $595 million net revenue figure topped the consensus estimate by $1.86 million while the $0.01 loss per share was $0.05 ahead of expectations. However, Pinnacle’s reported same-store property EBITDA of $174 million was slightly below consensus.
“We continue to see improvement in many key areas of focus in our business,” said Anthony Sanfilippo, Pinnacle’s chief executive officer. “Table game drop and spend per trip increased at a mid-single digit pace in the 2016 third quarter, particularly within the highest tiers of our database, where both trips and spend levels increased year over year. We also experienced our seventh consecutive quarter of growth in unrated play, with growth in this segment accelerating to 3 percent in the 2016 third quarter.”
The company also continued its stock repurchase program during the quarter by buying back 1.66 million shares at an average price of $12.05.
“Given the completion of the first $50 million buyback program announced in May 2016, our Board of Directors approved a second $50 million share repurchase program in August 2016,” said Carlos Ruisanchez, chief financial officer.
For the full year, Pinnacle has repurchased $70 million in stock, resulting in a roughly 10 percent reduction in outstanding shares.
Pinnacle saw major disruptions at its property in Baton Rouge, where three days of heavy rain in August and a subsequent curfew imposed by local authorities virtually shut down the business for a two week period.
“Our same-store revenue performance in the 2016 third quarter was negatively impacted by severe rain and flooding in Baton Rouge, which reduced visitation to our L’Auberge Baton Rouge business for approximately two weeks in August, as well as by extensive highway interchange work near Ameristar St. Charles,” he continued.
Despite the disruption, L’Auberge saw a comeback in September and realized year-over-year revenue and EBITDA growth of 5 percent and 18 percent, respectively.
To help its many Baton Rouge employees who were negatively affected by the flooding, Pinnacle raised $225,000 in relief contributions from employees and added a matching contribution from the corporate treasury.
The investment community was generally pleased with and surprised by the overall performance.
“In our view, PNK’s revenues are encouraging given massive flooding in Baton Rouge and infrastructure issues impacting Ameristar St. Charles in the 3Q,” said Cameron McKnight, a gaming analyst with Wells Fargo Securities.
“Looking beyond the disruptions, results actually came in ahead of our expectations and showed continued improvement in profitable revenue growth and operational efficiency, wrote Steven M. Wieczynski of Stifel Nicolaus Capital Markets. “All of that said, given our expectation for same-store regional gaming growth trends to remain muted for the foreseeable future, we continue to favor regional operators with more compelling inorganic growth pipelines.”
The major highlight of the quarter was the finalization of the Meadows transaction, which the company acquired for $138 million in September. “The Meadows complements our existing portfolio of businesses and provides additional operational scale and geographic diversification,” said Sanfilippo.
“The initial phase of the integration has gone well, and we are proud of the leadership at the Meadows and at our Las Vegas service center for guiding the business through the ownership transition,” he continued. “We are focused on improving profitable revenue streams, optimizing experience for our guests and maximizing cash flow of the Meadows.”
Pinnacle’s efforts to improve operating efficiency by restricting marketing expenses and other means were another strong theme, as they resulted in a 70 basis point expansion in same-store margin.
