One of the harshest winters in Reno history managed to throttle Eldorado Resorts’ recent momentum as a regional gaming player, but the company’s acquisition of Isle of Capri Casinos figures to put fresh wind in its sails.
Eldorado’s three Reno properties reported a 14 percent year-over-year drop in revenues from $73 million to $63 million, while adjusted EBITDA plunged from $11 million to $6.3 million.
Across the enterprise, net revenues were down 6 percent to $201 million and adjusted EBITDA dropped to $33 million. Net income was down to $1.0 million from $3.4 million and earnings per share fell from $0.07 to $0.02.
“The year-over-year decline in Eldorado’s first quarter results reflects the impact of significant weather disruption at our Reno Tri-Properties’ operations,” said Gary Carano, Eldorado’s chairman and chief executive officer.
11 of the quarter’s 14 weekends were disrupted by snowstorms that reduced drive-in visitation from California feeder markets to Reno, while revenues and EBITDA were down at Eldorado Shreveport by 7 percent each.
“The impact was a bit more than we had anticipated, particularly in Reno given the company’s exposure to the drive-in customer from California with over 4,000 rooms in the market,” wrote John DeCree of Union Gaming in a note. “In total, we estimate the unfavorable winter in Tahoe negatively impacted EBITDA by about $5.5 million while the low table hold in Shreveport cost another $0.7 million of EBITDA.”
On the positive side, Eldorado closed on its $1.7 billion acquisition of Isle of Capri Casinos earlier this week. The deal expands Eldorado’s regional gaming empire into one of 19 casino properties across 10 states. The new entity will have 20,000 gaming machines, 550 table games and 6,500 hotel rooms, and it would have generated $394 million in adjusted EBITDA in the 2016 calendar year.
“The addition of Isle’s twelve casino-resorts to our property portfolio transforms Eldorado into a premier, diversified regional gaming operator with many opportunities for near- and long-term growth,” said Carano. “The acquisition of Isle of Capri significantly expands the scale of our gaming operations and minimizes market-specific risk.”
The finalization of the deal, which was first initiated in September, 2016, figures to be a significant momentum generator and reason to shrug off the rough first quarter.
“The company reported first results which were very disappointing, with revenues and EBITDA 4 percent and 11 percent below our estimates, mainly due to one of the harshest winters in Reno history,” said Chad Beynon of Macquarie Capital. “Overall, Eldorado and Isle of Capri have recently generated solid growth, so we view the ERI first quarter result as an anomaly.”
Looking past snow disruption, Carano emphasized several other key takeaways from the quarter.
“The impact of decreased visitation at the Reno Tri-Properties resulting from all-time record snowfall in the region was partially offset by continued strong performance of Eldorado Scioto Downs, and the benefit from cost reductions implemented at Mountaineer which drove a significant double digit increase in the property’s Adjusted EBITDA, the first such year-over-year improvement in 12 quarters,” he said.
The company is continuing on a $50 million facility enhancement plan to expand and fortify its presence in a resurgent Reno market that will be a key growth driver in the quarters ahead.
“Ultimately, the favorable economic backdrop and fundamentals in Reno remain unchanged, and we are chalking up the first quarter to the weather impact,” said DeCree.
At the end of the first quarter, Eldorado had $44.6 million in cash on its balance sheet against $1.2 billion in total debt.
“With the completion of the acquisition of Isle of Capri, we expect that our free cash flow will position Eldorado to reduce leverage while maintaining the financial flexibility to evaluate and pursue additional growth opportunities,” said Tom Reeg, president and chief financial officer of Eldorado.
