Eldorado Resorts executives worked like weavers during their fourth-quarter earnings call Wednesday, tying threads from recently closed deals and rising companywide cash flow into a tapestry of company growth and profit potential.
However, Reno-based Eldorado posted a small loss and revenue missed Wall Street forecasts.
In a statement issued after stock markets closed Wednesday, Eldorado, which operates 27 casinos in 13 states, posted a loss of $120,000, or break-even per share, for the three months ended Dec. 31, compared with net income of $88.9 million, or $1.04 per share, a year earlier.
Adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure that excludes nonrecurring costs, was a bright spot, rising 22 percent to $161.3 million from $132.2 million. The biggest adjusted EBITDA gains were in Eldorado’s West (up 17.7 percent to $20.7 million) and Midwest (up 12 percent to $25.1 million) regions.
During the conference call, Eldorado CEO Tom Reeg added that EBITDA in Atlantic City had doubled in the quarter from a year earlier. Eldorado gained a foothold in the market when its $1.8 billion deal with Gaming and Leisure Properties to acquire Carl Icahn’s Tropicana Entertainment – including Tropicana Atlantic City – closed.
“I know there’s been a lot of concern this is the latest market where what we’re doing won’t work,” Reeg said. “But I think the early returns show you that we are doing something different.”
SunTrust Bank gaming analyst Barry Jonas said the company didn’t provide any commentary on recent media reports it was interested in acquires some of Caesars Entertainment’s casinos.
“Eldorado sees upside to mergers and acquisition synergy targets with plenty of runway to further reduce unnecessary marketing costs despite being well ahead of competitors here,” Jonas said in a note to investors.
Eldorado’s fourth-quarter revenue was $671.8 million, missing the $678.4 million forecast by Zacks Investment Research-polled analysts. The latest revenue figure is up 56.3 percent from $429.9 million a year earlier.
The fourth-quarter rundown incorporated a flurry of company-enlarging activity.
The Tropicana Entertainment deal in October gave Eldorado control of seven hotel-casinos in six states; real estate investment trust GLPI gained control of the properties’ real estate and land.
Eldorado Resorts’ fourth-quarter results also incorporate the Grand Victoria Casino in Elgin, Illinois, acquired in August for $327.5 million in cash.
Those deals followed Eldorado Resorts’ $1.7 billion acquisition of Isle of Capri Casinos in April 2017. The company is now one the three largest regional gaming operators, behind Penn National Gaming and Boyd Gaming Corp.
“These initiatives exemplify our commitment to enhancing shareholder value through strategic transactions, return-focused property enhancements and opportunistic partnerships to grow free cash flow and further enhance our financial flexibility,” Reeg said in a statement accompanying the results.
Eldorado Resorts stands poised to capitalize on sports betting, which became legal nationwide in May after the Supreme Court struck down a law that had banned the practice.
In November, Eldorado Resorts closed a 20-year deal to provide the Stars Group with skins for online sports betting in the 13 states Eldorado operates in, pending passage of legislation and licensing.
Then, in January, Eldorado Resorts closed a deal to gain a 20 percent ownership stake in sportsbook operator William Hill U.S. in exchange for a 25-year deal to operate facilities in the company’s casinos where sports betting is legal. Under the partnership, Eldorado and William Hill will co-develop sports books and infrastructure for mobile and online wagering.
Beyond sports betting, Eldorado Resorts agreed in April to co-develop a mixed-use project in Pompano, Florida, with Baltimore-based Cordish Cos. The 223-acre development, 35 miles north of Miami, will include restaurants, shops and entertainment venues.
Eldorado’s hiring of Wall Street investment banker Bret Yunker in February seemed to signal the company will continue its growth tactics.
Reeg has called Yunker, his onetime Bank of America colleague who had been an industry-focused managing director for J.P. Morgan, an “invaluable asset.”
Nevertheless, during the call Reeg said he wouldn’t specify his company’s mergers-and-acquisitions strategy.
“We’ve created a great stand-alone path for us,” he said. “2018 was about establishing a number of building blocks that will allow us to build value over a number of years. … We think we’re pretty good at buying assets that other people are running, changing the way they operate and driving EBITDA growth.”
The fourth-quarter results include operations from Presque Isle Downs and Lady Luck Nemacolin, two Pennsylvania gambling venues Eldorado Resorts sold to Churchill Downs. The $178.9 million deal for Presque Isle Downs closed Jan. 11; Eldorado expected to transfer ownership of Lady Luck Nemacolin by the end of the first quarter.
For the 12 months ended Dec. 31, Eldorado Resorts had net income of $95.2 million, or $1.22 per diluted share, up from $73.4 million, or $1.08 per diluted share.
Full-year revenue fell 27.6 percent to $2.1 billion from $2.9 billion.
Eldorado Resorts shares closed at $47.48 on the Nasdaq Wednesday, up 2 cents or 0.04 percent. The company’s shares rose just under 1 percent in after-hours trading. The share price has risen 39 percent in the past 12 months.
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