Penn manages expectations

Penn National Gaming lowered estimates for cash flow and other metrics today, as well as releasing 1Q14 results that J.P. Morgan analyst Joseph Greff wrote were “generally in line with our … estimates.”  According to Penn, player spending has been generally consistent, hollywood-casino-penn-nationalthough its lower-income players are “challenged.” (I would imagine so.) Full-year revenue and cash-flow projections were lowered, partly to take in a worst-case scenario for Argosy Sioux City, which could be forced to close July 1 — not likely, but it’s best not to assume. The difference was not enormous: Morgan had projected $2.6 million in revenue for the year, which Penn has marked down to $2.5 million.

Carlo Santarelli of Deutsche Bank characterized the first-quarter results as “in line.” Sioux City aside, he attributed some of the forthcoming writedown to “an assumption of recent trends carrying through throughout the year and greater than previously forecast cannibalization (Charles Town/Lawrenceburg). We expect this to be the primary focus of conversation on this morning’s call … The development pipeline projected completions and budgets are unchanged from prior targets.”

wilmottPenn says profit margins were unchanged in most of its markets and held their own in the Eastern/Midwest one, despite revenues being hard hit from inclement weather. Average daily spend by tracked customers rose 5%. “[V]isitation trends have been very concerning across our portfolio of properties, most pronounced,” said a Penn exec, “in Lawrenceburg and Charles Town,” leading to some of the lower revenue guidance. Over Easter weekend, attendance and revenue at those properties were down 20%. (Santarelli called this news “alarming.”) As CFO Saul Reibstein said, “Until consumer spending gains traction, we have to forecast the trends as we see them today.”

Penn also revealed that it’s not done sniffing around New York State and hopes to identify a second site for itself in the Capital region. However, it would be a less capital-intensive project than the $750 million joint venture with Cordish Cos. in Orange County (where it only expects a 7% ROI). Penn expects its Massachusetts racino to peak early, generating $250 million/year in the early going, then $120 million-$130 million once the megaresorts open. In one of the more colorful moments, Illinois‘ slot routes were characterized as “acting as parasites on the bricks-and-mortar business in the state.”

Generally, Penn predicted things to get worse before they get better: “Listen, I think you’re going to see closures like this in oversupplied markets, of which Tunica currently is. Atlantic City is another example of that,” said CFO Jay Snowden. CEO Tim Wilmott (above) added that it made no sense to acquire Harrah’s Tunica just for the sake of having it.

Of The Cosmopolitan of Las Vegas, Wilmott said “we have not actively engaged in looking at that asset,” adding that Penn would need a joint-venture partner and the $2 billion asking price was too rich for its blood. (“We think that’s a bit above the worth of the asset.”)

This entry was posted in Atlantic City, Cordish Co., Cosmopolitan, Harrah's, Illinois, Indiana, Iowa, Massachusetts, Mississippi, New York, Penn National, Slot routes, Wall Street, West Virginia. Bookmark the permalink.