Talking Dirty: A Look at Recent Vice Stock Conference Calls

Includes: AHBIF, MGM, MO, RICK
by: William Trent, CFA

First there were the socially responsible funds, which eschewed investments in "dirty" industries related to alcohol, tobacco, firearms, gambling or sex. The backlash, of course, was the "vice fund," which specifically looks for stocks of questionable moral fiber. To see how the companies in that latter group are faring, I looked at the most recent conference call transcripts for what I consider a representative sample.

Rick's Cabaret (NASDAQ:RICK) shows that sex sells.

To begin the third quarter of 2007 our net income exceeded $1 million, we're up 62% over 2006. Earnings per share or basic share were $0.17 versus $0.13. Our revenue topped $8.4 million which was up 35% over 2006 and our cash flows are up 52% for the nine months to $2.8 million.

The main driving factors, of course for the club, over the club operation with a gross income of $8.2 million and net income before tax on the club levels of $1.9 million. The main drivers of this is the Ft. Worth location which exceeded our expectations, we closed at the end of April. So we basically have about 10 weeks in the quarter from that location. The Austin and the San Antonio locations are now improving. We were able to cut some losses in San Antonio, although I changed some expenses and actually increased our revenues a little. The Austin Club is continuing to improve, we had a grand opening in August of the second floor of VIP area and we're hoping to see continued growth there. And of course our New York City location having record months, and we are still continuing to see very strong growth in our New York City location.

Same club, same period, sales were up about 10%, which we're very pleased with. We hope to continue that trend.

(Excerpr from full RICK conference call transcript)

Meanwhile, Altria (NYSE:MO) shows tobacco isn't exactly smoking.

PM USA’s shipment volume of 45.6 billion units was down 3.3% or 1.6 billion units versus the prior year. In the first half of this year Philip Morris USA estimates that total cigarette industry volume declined between 4% and 5%, and it is maintaining its prior estimate of a 3% to 4% decline in total industry volume for the full year 2007....

Turning to our international tobacco business; in the second quarter PMI's operating companies income increased 4.7% to $2.2 billion, due primarily to higher pricing and favorable currency of $87 million, partially offset by higher asset impairment and exit costs of $76 million.

PMI's cigarette shipment volume increased 3.3% or 7.1 billion units to 221 billion units, due primarily to the acquisition volume from Lakson Tobacco in Pakistan. Volume gains in several markets, including Argentina, Egypt, Indonesia, Korea, the Philippines and Ukraine, as well as the favorable timing of shipments in certain markets, were partially offset by shipment declines in Germany, the Czech Republic and Russia, as well as Japan, where comparisons to the second quarter of 2006 were distorted by heavy trade purchases in anticipation of the July 2006 excise tax increase.

Excluding the impact of acquisitions, PMI's cigarette shipment volume was down 0.5%.

(Excerpt from full MO conference call transcript)

Anheuser Busch (NYSE:BUD) is anything but flat.

Industry sales trends continue to be very good, despite the difficult comparison with the unusually strong first-half of last year when shipments increased 2.9%. Anheuser-Busch's U.S. market share for the first six months of the year decreased one-tenth of a share point on a shipment basis.

Revenue per barrel increased 3.1% in the second quarter and was up 2.7% year-to-date. Front line price increases contributed 190 basis points to revenue per barrel growth in the second quarter. Promotional price adjustments contributed 10 basis points and portfolio mix was favorable by 110 basis points due to the mix impact from the import brands.

Average promotional prices were higher than the prior year for both the Memorial Day and Fourth of July holidays and we are encouraged about the outlook for the promotional pricing environment for the Labor Day weekend and the remainder of the year.

Consistent with the timing pattern for our 2007 pricing actions, we anticipate implementing price increases on the majority of our volume early next year with a few increases planned for the fourth quarter of this year. As in the past, AB’s pricing actions will be tailored to specific markets, brands and packages.

Our international beer segment net income increased 14% in the second quarter and was up 19% in the first-half, led by Grupo Modelo.

(Excerpt from full BUD conference call transcript)

Finally, MGM Mirage (NYSE:MGM) is on a roll.

As far as operating results, net revenues increased 10% to $1.9 billion, up 4% excluding Beau Rivage, an all time revenue quarter for the company. Our fundamentals are clearly strong as evidenced by tremendous hotel results and excellent cash flow results across our portfolio of resorts.

As mentioned in the release, we had an all-time record second quarter property EBITDA of $686 million, which represents a 9% increase over the prior year. Las Vegas Strip occupancy percentage of 97.8% was our company’s highest occupancy since 2000. Combined with a strong average room rate of $162, our Las Vegas Strip RevPAR was up 7%. Demand has remained robust and increased visitor volume to our Las Vegas Strip resorts continues to drive revenues.

MGM Grand Las Vegas earned $108 billion of EBITDA which is an all-time record for any quarter in that property’s history, and a 43% increase from the prior year. TI and Excalibur also earned all-time record property EBITDA. The Mirage earned $59 million, a record second quarter which represented 41% increase over the prior year. New York, New York also had a record second quarter. Bellagio had its second-highest ever second quarter property EBITDA against a very tough comparison to the second quarter of ‘06, despite having an abnormally low hold percentage this year and a high hold percentage last year.

(Excerpt from full MGM conference call transcript)

Based on this admittedly selective sample, business is good for sin stocks. Even MO, the lone representative with declining sales, makes up for it with its generous dividend.

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Tagged: Earnings
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