Last week Pinnacle Entertainment (NASDAQ:PNK) posted earnings that missed on the top and bottom lines. Shares are down nearly 8% over the last five days. This comes as the company missed 2Q EPS by $0.09, posting earnings of $0.37 a share. This should come as less of a surprise for investors following the casino industry, where the industry remains under pressure. If there's one bright spot, it's that 2Q results were filled with one time items. These included the company rollout of its loyalty program to the Ameristar (newly acquired) properties, severance expenses, repairs due to water damage, and lost business due to shutdowns. Adjusting for these one time items and EBITDA would have been 7% higher to $150 million.
We profiled Pinnacle back in September, and since then shares are down around 5%. At the time we noted one of the best aspects of Pinnacle was its Ameristar acquisition. We said, "We think the acquisition of Ameristar is a great fit for Pinnacle. Their properties are complementary and the combined FCF can go to reducing debt and lowering borrowing costs. Pinnacle just issued $850 million in notes at an interest rate of 6.375% to redeem its existing 8.625% senior notes due in 2017."
On the earnings call, the company noted that since completing the Ameristar acquisition, it had reduced net total debt principal by over $450 million. We also note that one of the key theses for the Pinnacle investment story is its ability to pay down debt. This will ultimately free up cash flow, but at the same time it's not something that'll be done overnight. In other news, the activist firm Orange Capital, said it would push Pinnacle to spin off its real estate into a REIT. Orange says shares would be 60% to 90% higher if the spin-off was done.
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