It is early in the third quarter reporting season, and there are no surprises so far.
Wynn had dreadful numbers out of Macau and CEO Steve Wynn rattled investors by strongly criticizing the Macau government and its practice of not allowing casino companies the number of table games their new multi-billion dollar resorts are premised on.
Penn National, Boyd and Monarch became the first US regional casino operators to report, and they basically confirmed the industry’s sanguine view.
As an aside, it’s interesting to see the role reversal as the one-time dogs of American regional gaming now have their day just as the once high-flying Macau operators have moved into the investor dog house.
If there has been a surprise so far, it is Las Vegas Sands. The surprise wasn’t just that LVS beat consensus estimates by two cents a share, but by how it did it, and about the bullish outlook expressed by CEO Sheldon Adelson and COO Rob Goldstein on the company’s quarterly investor call.
Macau gaming was every bit as much a disaster for LVS as for Wynn and other operators. EBITDA there fell 32.8 percent on a 28.8 percent collapse in revenues.
The picture elsewhere was better, with Singapore beating expectations and growing again, Las Vegas up and Pennsylvania strong. LVS helped itself significantly by cutting costs, about $175 million annually, with a target of $230 million.
Further, Adelson and Goldstein described the strength in Singapore as being non-China dependent and likely to continue to improve.
And they stuck to their story that Macau is a long-term growth market, especially for a company that soon will have 13,000 hotel rooms, must-see properties like Venetian and Parisian, which opens next year, and loads of non-gaming amenities.
LVS properties in Macau are designed for just the kind of transformation from gambling to tourist-centered that the Macau government wants to achieve, they said.
And, to give tangible support to their view, Adelson announced that LVS is raising its quarterly dividend 10.8 percent to 72 cents a share, thus keeping to his oft-stated intention of raising the dividend at least 10 percent a year.
The higher dividend will cost LVS about $1.1 billion a year, or about as much as the company generates in EBITDA every quarter. In other words, it should be sustainable, especially given a low debt-to-EBITDA ratio of 1.6 times.
The dividend will now yield more than 6 percent at LVS’ current stock price and appears both safe and likely to grow.
As a result of the beat, dividend increase and bullishness, a number of analysts edged up their price targets on the stock.
Investors, however, responded less bullishly.
LVS stock, already nearly cut in half from its March 2014 high of $88.28, sold off 0.51 percent the next day.
The big concern is also the big test for LVS – the opening of so much competition in Macau, most especially Melco Crown’s StudioCity, which promises to be the kind of tourist attraction LVS has dominated with Venetian, and hopes to strengthen with Parisian.
The hope is that Studio City and Parisian do, indeed, grow the market, proving the wisdom of transforming Macau into a tourism mecca, and of LVS’ large-scale integrated resort model.
Of course, even as Goldstein said, the return of high rollers to Macau is necessary to return to the kind of profitability casinos previously enjoyed.
In the meantime, those willing to bet on Adelson’s vision will be paid well for the risk and the wait.
A final note. It is interesting to see how comfortable Goldstein has become talking for the company on the conference calls. In past years, executives tended to defer to Adelson, even when the script called for them to take the lead.
In recent years, Adleson appears to have given up on sharing the stage and now makes the opening statements and fields questions.
Goldstein, however, has grown to making the calls a two-person presentation, not just answering questions directed to him, but easily interjecting or taking the lead in answering questions not directed to him or Adelson by name.
His confidence and ability to articulate the vision as effectively as Adelson is important to anyone concerned about succession.
Adelson clearly remains in charge and is enjoying his role at the age of 81. But for a company so identified with its founder, investors can take comfort in knowing the Number Two guy shares the vision.
