MGM Resorts International (MGM) reported earnings on Tuesday, August 7th of a loss of 30 cents per share compared with analyst estimates for a loss of 15 cents per share. However, one time items accounted for 18 cents of that loss, giving MGM an adjusted loss of 12 cents. Revenue increased 29% year-over-year to $2.32 billion for the second quarter. Revenue numbers were lifted by strong results from Macau, and increasing room revenue. The company also stated that it saw some weakness in bookings during the quarter; however it believes this impact will be temporary, largely impacting next quarter. MGM believes this weakness should result in a decrease in RevPAR next quarter. The report from the Nevada gaming board on June gaming revenue showed a 4.5% year-over-year decrease in strip gaming, confirming this weakness.
Room remodels at Bellagio and MGM Grand appear to be driving higher rates at those properties. The company is starting a room remodel at the Bellagio spa tower, and will be remodeling The Hotel at Mandalay Bay next year. Remodels have shown strong return on investment for MGM recently, and these renovations show continue to drive higher ADR at Bellagio and Mandalay Bay. The new show at Aria will start November 1st, and CityCenter continues to improve with Aria occupancy passing 90% for the first time this quarter.
EBITDA in Macau reached a record of $199 million, before branding fees, and increasing visitation to MGM Macau helped drive gains in mass market gaming, as well as retail and F&B revenue. Going forward MGM Macau will be looking at improving junket operations, including bringing in new junkets and reallocating tables. Next year the company will also be looking to refresh the mass market gaming area in Macau. The company is also moving forward with the Cotai project, and believes the process with the Macau government is going quickly.
MGM has stated that they are focused on free cash flow, and plan to do that by keeping costs low and improving market share as well as customer mix. Refinancing debt going forward should help improve the free cash flow picture. Overall MGM responded well to earnings with the stock raising as much as 10% on the release, I believe should softness in booking continue to affect business going forward the market would not continue to view that as just a speed bump to recovery.
MGM's move higher after earnings and the move higher over the last few days has moved the stock near resistance at around $10.50. This appears to be a significant resistance level for MGM and should MGM be able to move above $10.50 I believe it could rally toward highs from early this year. Now could be an attractive time to look at buying MGM as any improvement in the economy and the customer would have a large positive impact on this company.
Data sourced from: Company filings, and Yahoo!Finance. Chart from: Freestockcharts.com
Disclosure: I am long MGM.