MGM shares plummeted nearly 10 percent Thursday as the company’s fourth quarter 2016 earnings missed expectations on multiple fronts.
For its Las Vegas Strip segment, the company reported EBITDA of $365 million for the quarter – 10 percent below the Wall Street consensus estimate, and growth in revenue per available room of just three percent – a figure in-line with company guidance but below analyst expectations and comparable data.
The company also reported largely flat revenue of $500 million in Macau, with main floor table game revenue dropping two percent during the quarter.
After closing Wednesday at $29.58, MGM shares plummeted to $27.11 as markets opened Thursday. On the company’s conference call with investors, chief executive Jim Murren sought to clear up what he called incomplete guidance previously given to investors regarding the projected effects of the Jewish holidays on the fourth quarter.
Murren apologized for the confusion, saying that “we should have been more clear in our third quarter call,” but failed to stop the bleeding as shares continued to tumble to $26.92 by 1pm.
The impact of the shift of holidays like Rosh Hashanah and Yom Kippur from the third quarter in 2015 to the fourth quarter in 2016 was about $20 million in EBITDA and not been properly communicated ahead of time, he said.
Aside from the immediate market reaction, MGM put forth another impressive quarter – particularly on the domestic front, where net revenues were up 17 percent year-over-year to $1.8 billion and two percent on a same-store basis, net income of $25 million and property EBITDA of $493 million – a 14 percent year-over-year jump.
For the full enterprise, adjusted EBITDA checked in at $589 million for the quarter – 6 percent below consensus. Diluted earnings per share were $0.04, which was an improvement over $1.38 loss incurred in the prior year quarter.
“In 2016, MGM Resorts produced diluted earnings per share of $1.92 and delivered the best same-store domestic Adjusted Property EBITDA and Adjusted Property EBITDA margins in nine years,” said Murren.
“The achievement of key financial and strategic milestones demonstrates our continued focus on driving profitability and shareholder value, strengthening our balance sheet, and further positioning MGM Resorts as a leading entertainment and destination-resort company,” he continued.
Wall Street analysts reckoned that the early-morning trading woes ultimately had little to do with the company’s fundamentals.
“After taking all of the items into account, we encourage investors to take advantage of any trading weakness at today’s open to add to or establish new positions in the name, as we believe there was a lot of “noise” in the 4Q16 results, and we in no way view the performance as indicative of a structural change in the MGM story,” said Steven M. Wieczynksi, a gaming analyst with Stifel.
The highlight of the quarter was performance of MGM National Harbor, which opened on December 8 and has already exceeded most expectations.
“We’re very happy with how the property is performing, and we’re just literally turning on some of the marketing spigots,” Murren said, noting that the property is averaging 22,000 visits per day and has already signed up 150,000 new members in MGM’s MLife loyalty program.
Analysts were also impressed by the National Harbor showing but warned against reading too much into early results.
“National Harbor reported $9.6 million of EBITDA in less than a month of operations. This was above our estimate of $7 million,” wrote Cameron McKnight of Wells Fargo. “In our view, it’s tough to extrapolate much from the limited data given expenses were likely high into the opening and revenues likely benefitted from the grand opening and New Year’s Eve.”
Another highlight fourth quarter highlight was the announcement that MGM is ready to begin returning capital to shareholders and that it would commence a regular quarterly dividend of $0.11.
“We decided that a quarterly dividend was the best path forward at this point,” Murren said. “That is going to be the guiding principal forever more – returning capital, disciplined investment, on the path to investment grade, growing the company prudently and accretively.”
Murren also noted on the investor call that MGM Cotai in Macau is still expected to open in the second half of 2017, but that he wants to ensure all of the proper pieces are in place beforehand.
“We’re not rushing to the opening. We want to make sure we make a very good impression when we do open,” he said.
