Macao: “Less bad”; MGM beats estimates

That’s how J.P. Morgan analyst Joseph Greff spun the latest numbers out of Macao, where gaming revenues plunged 34%, less
than the year-to-date average of 37%. Mass table game winnings were up 11% from June, “more positive than we otherwise would have thought.” However, VIP revenues were down 44%, slipping from already-low June numbers. However, punters ran riot at the slot machines, where revenues catapulted 39%. Greff expects August to see another 34% decline and for comparisons to be rough until the fourth quarter, when Macao comes up on the first anniversary of its recession.

* If Greff was guardedly optimistic about Macao, his Deutsche Bank colleague, Carlo Santarelli, was downright gloomy about Scientific Games after it came in slightly under Deutsche Bank’s projections for 2Q15 revenue. He blamed “aggressive [free cash flow] targets which we think prove to be lofty … elevated financial leverage in a challenged environment” and a deteriorating replacement cycle, something we don’t see changing.” Were it not for better-expected-performance in interactive games, there’d be naught for Scientific’s comfort in his report.

* Macao’s adverse fortunes shaved $8 million off MGM Resorts International‘s second-quarter profit. Net revenues on the Las Vegas Strip grew $119 million but that wasn’t nearly enough to stave off a $385 million (-41%) at MGM Macau. The company did well in regional operations, up 6% in Detroit and 13% in Mississippi, although Borgata and Grand Victoria in Elgin were off 10%. On the Strip, net revenues were up at every property from Circus Circus ($63.5 million) to MGM Grand ($304 million), save for Bellagio, down $13 million but still firmly #1.

According to Santarelli, MGM beat Wall Street expectations for Strip revenue, cash flow and room revenue, while Macao “was better than we feared.” Above and beyond that, stock pickers are chafing to hear of more MGM asset sales and at least the consideration of conversion to a REIT structure.