Penn National Gaming recorded a stellar 2017 first quarter, outperforming its own targets even after revising its guidance upward in March to reflect strengthening trends.
For the quarter, the company reported net revenues of $776 million – $15 million above original guidance and $6 million ahead of the adjusted guidance. Adjusted EBITDA checked in at a record $222 million, which was in-line with the revised guidance and a 4 percent jump year-over-year.
Consolidated property-level EBTIDA was $241 million, also up from the prior year and topping consensus estimates, while property EBITDA margin 31.6 percent – up 70 basis points year-over-year.
“Penn National delivered a strong first quarter with operating results exceeding both our original and updated guidance,” said Timothy J. Wilmott, chief executive officer. “Throughout the quarter we made continued progress against our primary strategic initiatives as we continued to ramp the results of newer properties and again grew consolidated property operating margins.”
“Our results also benefited from last year’s accretive acquisition of Rocket Speed and our recently expanded retail gaming operations which led to substantial year-over-year Adjusted EBITDA growth at both Penn Interactive Ventures and Prairie State Gaming,” Wilmott continued. “Our solid first quarter results highlight the significant operating leverage in our model, and we believe Penn National remains well positioned to drive further free cash flow growth from any improvements in consumer spending.”
The company updated its guidance for the full year 2017 and is now projecting $858 million in EBITDA – up from $840 million, while net revenue guidance was bumped up slightly $3.05 billion to $3.07 billion. These changes in guidance do not reflect the pending purchases of two properties in Tunica, Mississippi that are expected to close in the second quarter.
The favorable first quarter haul was driven by a strong showing in the company’s northeast segment – which generated $393 million in revenue and $127 million in EBITDAR. Racetracks in Ohio and Charles Town, West Virginia continued to perform well, and there was ongoing strength in rated play across the board coupled with improvements in unrated play.
Wilmott noted that new supply coming online near Washington, DC has had a less than anticipated impact. “These results were achieved despite the competitive impact of National Harbor in Maryland on our Hollywood Casino at Charles Town Races property. While still early, we remain pleased with the current performance of our facility despite this new competition.”
Analysts remain impressed by how well Charles Town has held up since the opening of MGM National Harbor in December.
“Headwinds in Charles Town eased in the 1Q despite the opening of National Harbor in December, as gross gaming revenues declined 7 percent in the fourth quarter – which is better than most anticipated. As such we continue to believe GGR declines will be less than current expectations suggest,” said Chad Beynon of Macquarie.
“The quarter benefitted from broad-based strength, as 14 of Penn National’s 22 properties witnessed year-over-year increases in EBITDA and operating margins. We are particularly encouraged by results in the Northeast segment, as revenues and EBITDA came in 3 percent ahead of our forecast,” wrote Steven M. Wieczynski, an analyst with Stifel.
Because Penn National preannounced its earnings and updated its guidance in March, others aren’t seeing the results – as strong as they may be – as a significant needle mover.
“The quarterly results and guidance were generally as expected, based on the preannouncement of results and the expectation that guidance would move higher,” said David Katz of the Telsey Group.
The company announced a stock repurchase program during the quarter and bought back $6 million worth of shares at an average price of $13.88 – roughly 40 percent below Wednesday’s closing price of $19.07. $94 million remains for stock buyback activity pursuant to the current two year, $100 million authorization that was announced in February.
Alongside the share repurchases, Wilmott said that the company is aggressively paying off debt.
“During the first quarter we reduced total traditional debt, net of cash, by approximately $22 million from 2016 year-end levels even as we allocated capital to share repurchases, accretive acquisitions and growth and maintenance cap-ex,” said Wilmott.
Penn National’s net debt now stands at $1.163 billion, down from $1.186 billion at the close of 2016.
Penn National shares were down 5 percent in trading Thursday morning to as low as $18.12 at 10:00am EST.
