Penn National Gaming reported fourth quarter earnings largely in-line with expectations Thursday morning, with a miss on overall net revenues mitigated by stronger profit margins and cost reductions, all of which led to EBITDA and earnings per share figures above company guidance and analyst estimates.
The regional gaming giant reported net income of $5 million, adjusted EBITDA of $196 million and earnings per share of $0.05 for the quarter. Net revenues, however, checked in at $742.9 million – down from $748.3 million guidance but largely in line with analyst estimates.
Penn National’s $3 billion in net revenues and $843 million in adjusted EBITDA for the year 2016 also matched up with previously issued guidance, while net income on the year was $110 million – $20 million higher than anticipated.
“Our success throughout 2016 in generating strong free cash flow again highlights our ability to efficiently manage our existing and new operations and conservatively manage our capital structure to de-lever while pursuing new growth opportunities,” said Timothy J. Wilmott, President and Chief Executive Officer of Penn National Gaming.
“Our solid fourth quarter and 2016 results reflect our focus on driving operating efficiencies and margin expansion at our established properties combined with the recent additions to our portfolio, the ongoing ramp of our Ohio operations and our expanded retail gaming and social gaming operations through Prairie State Gaming and Penn Interactive Ventures, respectively,” Wilmott added.
“Management noted it was able to overcome softness at certain properties with reductions in overhead. This result, in our view, is consistent with what PENN reported in 3Q and 2Q regarding slightly challenging trends in some markets,” wrote Chad Beynon of Macquarie Securities.
Penn National noted that while the launch of the Hollywood Jamul property in San Diego had tailed off after a fast start, the Tropicana Las Vegas – which it acquired for $360 million in 2015 – experienced strong EBITDA growth during the quarter despite some pedestrian access issues.
The company issued guidance of $761 million in net revenue and $209 million in adjusted EBITDA for the first quarter of 2017, with $3.047 billion in net revenue and $840 million in EBITDA for the full year.
“Though optically the 2017 guidance may not look that strong, we are actually encouraged by the embedded expectations for PENN’s regional gaming portfolio,” wrote Steven Wieczynski of Stifel Nicolaus Capital Markets.
The company also announced that its board of directors had authorized a $100 million stock repurchase program.
“Our new $100 million share repurchase program underscores our commitment to returning capital to our shareholders,” Wilmott said.
“The authorization reflects our Board’s continued confidence in Penn’s ability to execute on our growth initiatives and deliver long-term value to our stakeholders. Penn’s strong cash flow generation and conservative approach to managing our balance sheet provides us the flexibility to continue growing our business and reduce leverage while also lowering the outstanding share count.”
The repurchases will be made in either open market or privately negotiated transactions over a two-year period, the company said, and will be paid for with cash flow from ongoing operations.
“In our view investors have been pushing hard for capital returns and we expect the buyback to be viewed favorably,” wrote Cameron McKnight, a gaming analyst with Wells Fargo Securities.
The trend of uneven performance between rated and unrated play that emerged earlier in the year continued in the fourth quarter, a potential indication of difficulty in attracting younger millennial players. 65 percent of all business came from rated customers, but there was continued softness among other player groups.
