Monarch Resort & Casino reported stronger than expected third quarter results Tuesday evening and recorded its eighth consecutive quarter of double-digit income growth.
The Reno-based company posted a 14.3 percent year-over-year increase in adjusted EBITDA to $16.3 million, a 21.6 percent jump in earnings per share to $0.45 and a 22.5 percent jump in net income to $7.8 million.
The performance surpassed consensus expectations on Wall Street, which were pegged at roughly $15m in EBITDA and $0.39-$0.40 for EPS.
“We are pleased with our 2016 third quarter net revenue and adjusted EBITDA growth as well as our eighth consecutive quarter of double digit net income growth,” said John Farahi, Monarch’s co-chairman and chief executive officer in the earnings release.
The stronger-than-anticipated results were due primarily to strong performance at Monarch’s property in Black Hawk, Colorado (even as work on a major expansion continues), a 6.1 percent jump in food and beverage revenues and a revamped buffet and parking expansion at Atlantis Casino Resort Spa in Reno.
Farahi emphasized that Monarch is benefitting from an improving macroeconomic environment in the Reno area. The region is the recipient of a $5 billion investment from Tesla that is expected to bring 6,500 manufacturing jobs, has a favorable tax environment and is well-positioned geographically to serve as a manufacturing hub in the western U.S.
He also highlighted an ongoing effort to keep operating costs low – as evidenced by a 0.6 percent drop in casino operating expense as a percentage of casino revenue to 40.3 percent from 40.9 percent in the prior year quarter.
“We are focused constantly on improving operational efficiency and implementing analytical tools to provide real-time decision making information and accurate performance measurement. These efforts are yielding improved results which we expect to build upon going forward,” Farahi explained.
The reaction from the investment community was largely positive.
“When married with an ongoing commitment to further optimize player reinvestment spend and a judicious approach to managing operational expenditures, the improved top-line results continue to flow through to outsized cash flow and EPS growth” wrote Steven M. Wieczynski of Stifel Nicolaus Capital Markets in a note to clients.
“We remain Market Perform-rated on MCRI, we like the economic strength in Reno and Blackhawk and rate management highly, but would look for a pullback to become more constructive on shares,” wrote Cameron McKnight of Wells Fargo Securities, who adjusted upwards his EPS and EBITDA estimates for 2016.
But there are ongoing reservations over ongoing delays – which are largely outside the company’s control – surrounding the Black Hawk expansion and the associated disruption. The project, which will double the casino space and add a 23 story hotel, is now scheduled to finish in the second quarter of 2019 instead of the second quarter of 2018.
“Though we do not want to diminish the improvements achieved in Black Hawk to date, we find it incredibly difficult to forecast the impact the disruption created by ongoing construction and the need to shuttle patrons from the new parking garage to the existing facility will have on the property’s near-term results with any degree of accuracy,” wrote Wieczynsk.
