Murren in contentious earnings call: One month does not constitute MGM’s entire year

August 2, 2018 9:02 PM
  • Howard Stutz, CDC Gaming Reports
August 2, 2018 9:02 PM
  • Howard Stutz, CDC Gaming Reports

MGM Resorts International told the investment community Thursday its third quarter net revenues from its Las Vegas Strip properties could be off by anywhere from by 8 percent to 10 percent following a less-than stellar July.

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But that’s just one month and not a reflection of the entire year, MGM CEO Jim Murren told analysts during a rather testy early-morning hour-long conference call. He said the company warned investors in the Spring that it was guiding toward softness in the summer months in trying to fill some 40,000 hotel rooms on the Strip.

“We all get frustrated over RevPar,” Murren said concerning the acronym for the non-traditional revenue-per-available-room metric used by Wall Street to measure profitability. “When we meet or exceed RevPar, it’s no big deal. When we miss, it’s a big disaster. We’re going to be much more conservative in our RevPar guidance.”

Murren said RevPar would be off between 5 percent and 7 percent in Las Vegas during July, but rest of 2018 and 2019 remains on track.

Analysts were not surprised.

Deutsche Bank gaming analyst Carlo Santarelli told investors in a research note the company needed several events to occur to help steady jittery investors, including acceptable returns on its new projects and for the company to “overcome Strip competition and generate reasonable average daily room rate boosts, even in periods of group mix softness.”

Following Wednesday’s Caesars Entertainment conference call, where reduced third quarter projections in Las Vegas sent the stock prices of the gaming sector tumbling, Murren didn’t hesitate to address the proverbial elephant in the room.

In statement released before the earnings call, he said MGM’s nine Strip resorts and the company’s half-owned CityCenter development benefitted in last year’s third quarter from a stronger citywide convention base, two major boxing events, and a higher than normal hold percentage on wagers from table games.

“The difficult comparison in citywide convention attendees has resulted in a more negative than anticipated hotel mix shift creating short-term competitive rate pressure in the current year third quarter,” Murren said. “In addition, the transition of Park MGM continues to create short-term headwinds but is on track to complete its transformation by the end of this year.”

Murren said the company’s attempts to fill July with smaller convention and meetings didn’t come to fruition and MGM had to reduce hotel room rates to attract visitors.

He reminded analysts that July and most of the summer months in Las Vegas are the slowest times for the city in terms of visitation.

“I don’t like calls like this,” Murren said. “We drive revenue everywhere, not just in the hotel business. Our market share on the Strip is up in every metrics. And we expect that to grow into next year.”

As for MGM’s second quarter that ended June 30 – the reason for Thursday’s earnings call – total net revenues grew 7.8 percent to $2.85 billion. A little more than half of the company’s overall revenue – $1.45 billion – came from MGM’s Las Vegas operations, which saw revenue grow 1.7 percent. The company’s newest property – MGM National Harbor in Maryland, grew revenue by 13.5 percent.

Revenue from MGM’s Macau operations grew 32.4 percent to $561.4 million, due primarily to the February opening of MGM Cotai. Murren said the company expects to complete construction of several non-gaming amenities to the property by the end of the year.

Net income for MGM in the quarter was $124 million, or earnings per of 21 cents. A year ago, the company’s net income was $210 million, or 36 cents per share.

“Going forward, the choppy nature of issued guidance will continue to be a focal point for the company and its competitors,” Jefferies gaming analyst David Katz told investors.

Murren also discussed other company initiatives, including this week’s announcement of a sports wagering partnerships with Boyd Gaming Corp., United Kingdom betting giant GVC Holdings, and with the National Basketball Association.

“MGM has an opportunity to dominate sports betting in the U.S.,” Murren said, adding the company expects to be involved in legislative activity to expand sports wagering, such as Massachusetts and New York.”

Murren said the company plans to reduce its 70 percent ownership state in real estate investment trust MGM Growth Properties over the next three years, saying the company would benefit from an expanded shareholder base.

MGM’s newest resort in Springfield, Mass., is expected to open later this month and the company remains focused winning one of the three integrated resort licenses in Japan.

“Japan is the greatest single growth opportunity we have seen in a decade,” Murren said.

After trading most of the day, shares of MGM Resorts rallied to close at $28.97, up 46 cents or 1.61 percent on the New York Stock Exchange.

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.