The Passed Seven
by Paul Larson (MF Parlay)

MARKET CLOSE              4/18/97   4/25/97
S&P 500 (SPX):             766.34    765.37 (-0.10%)
Nasdaq Composite:         1222.57   1209.29 (-1.09%)
CBOE Gaming Index (GAX):   198.59    191.89 (-3.37%)

Chicago, IL (April 25, 1997) -- And you thought we had a lot of earnings last week! This week saw the who's who of the gaming industry continue to step to the table to report quarterly profit numbers. Considering we are coming off the slowest quarter of the year, most results were not half-bad. Although, you wouldn't know it from looking at the CBOE Gaming Index, which was off yet another three-plus percent this week. The past year's performance of the GAX is approaching ridiculous territory. The 52-week high of the GAX reached last summer is 336.71.

Probably the largest chunk of news in the Motley Fool this week was the Fool Portfolio's decision to short TRUMP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %>. The Gardner brothers cited Trump's high debt, red ink, and coming competition as the main reasons for the short in the sell report for their model portfolio. I think the report best summed it up when it said, "The struggle to remain attractive to gamblers is expensive, and the threat of new casinos coming to town should make it more expensive. Meanwhile, Trump's debt is back-breaking." I would encourage reading the report in its entirety since it is one of the more comprehensive pieces of stock research the Fool Portfolio has ever put out.

Trump also came out with earnings this week that were, predictably, in the red. The company lost $0.59 share in the first quarter. Comparisons to the year ago quarter are irrelevant since the company is radically different than it was last year. However, results were significantly better than the $1.28 loss the company posted in the fourth quarter. EBITDA was $60.0 million for the quarter versus $34.9 million in the fourth quarter. With net interest expenses running about $50 million a quarter, the company returned to being cash-flow positive.

Revenues and EBITDA at all three of its Atlantic City casinos were up versus the year ago quarter. However, Trump Plaza continued to show significantly reduced margins after the unit's expansion was completed late last year. The company's Indiana casino still reported some attractive unit economics and reported EBITDA of $9.4 million for the quarter, or about 16% of the company's total EBITDA. Going forward, results in Atlantic City should show continued improvement over the warm summer months while results in Indiana have a good chance of taking a hit due to new, increased competition in the area.

Probably the most anticipated earnings came from the owners of the new New York, New York casino. PRIMADONNA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRMA)") else Response.Write("(Nasdaq: PRMA)") end if %>, half owners of New York, New York, came in with quarterly earnings of $0.34 per share. The company announced it had EBITDA of $28.4 million in the quarter versus $17.4 million last year, an increase entirely attributable to New York, New York. The new casino had net revenues in the first quarter of $67.9 million and EBITDA of $35.1 million, or an astonishing 52% EBITDA margin. Occupancy at the hotel was 99.5% with an ADR of $100. Needless to say, the newest hotel at the infamous four-corners intersection on the Vegas strip is hitting on all cylinders.

Things weren't so rosy at Primadonna's other units, though. Revenues and EBITDA at its three Primm, Nevada casinos were down 5% and 20% respectively. This was blamed on construction and the weak demand seen in the non-Las Vegas southern Nevada market. Primadonna's stock dropped $1/2 to $19 1/8 after the earnings were announced.

The other owners of the New York, New York casino, MGM GRAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MGG)") else Response.Write("(NYSE: MGG)") end if %>, also came out with earnings this week. MGM reported earnings of $0.51 a share, and increase over the $0.44 reported last year, even though the increase in EBITDA over the prior year was only 4% including the $14 million New York, New York added to the EBITDA line. Much like its partner in the new casino, MGM was hurt at its main casino across the street by construction related business impediments. EBITDA at the company's main unit were $66.6 million versus the $52.8 million reported last year. MGM Grand is going forward with its plans to build casinos in both Atlantic City and South Africa as well as throwing its hat into the ring for one of the three lucrative Detroit licenses that are up for grabs.

RIO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHC)") else Response.Write("(NYSE: RHC)") end if %> joined the earnings parade this week and reported a net loss of $0.11 a share, mostly due to a $11.7 million pre-opening expense write-off the company took. Subtracting the pre-opening expenses the company incurred related to its new Masquerade Village and hotel tower the company earned $0.22 a share in the first quarter. Net revenues were up to $69.9 million and EBITDA was up to $17.7 million, a 27% and 14% increase respectively over last year due to the company's expansion at its sole, Las Vegas unit. The expansion process will be completed during the next few weeks and Rio should have 100% of their new hotel and casino capacity online by the end of the current quarter.

Phoenix-based AZTAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZR)") else Response.Write("(NYSE: AZR)") end if %> reported break-even results for the second quarter in a row after backing out tax benefits. EBITDA for the quarter was $29.8 million versus $27.5 million for the year ago quarter. The increase is due to the significant addition the company made to its Atlantic City Tropicana operation last summer. Much like Trump, Aztar should see casino and hotel revenues pop up when the tourist season heats up in Atlantic City.

Southern Gaming operator CASINO MAGIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMAG)") else Response.Write("(Nasdaq: CMAG)") end if %> reported a net loss of $0.10 a share for the first quarter. This is compared to the $0.05 a share the company earned in the first quarter of 1996. EBITDA at both its Biloxi and Bay Saint Louis, Mississippi, riverboats dropped versus year ago comparisons. Revenues at Bay Saint Louis actually increased about 5% over 1996, but increased marketing expenses spent to get this revenue hurt the bottom line. The company's new Bossier City, Louisiana, casino actually had negative EBITDA of $.7 million in the quarter. Having negative EBITDA in the casino industry is very rare and a potential financial disaster if not rectified swiftly. The company cited lower than projected revenues and extensive marketing costs as reasons for the extensive loss in Louisiana. The company has started a cost-cutting campaign in Bossier City and has laid off 163 workers and drastically cut down on its marketing expenditures. The company is also opening a new 378-room hotel tower in Biloxi this summer that should make the particular property more competitive.

STATION CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STN)") else Response.Write("(NYSE: STN)") end if %> reported earnings per share of negative $0.46 for the quarter. However, the company did incur numerous one-time and pre-opening expenses related to its new Kansas City casino. Ignoring the charges, the company would have earned $0.15 per share versus the $0.21 the company reported last year. Kansas City Station, which opened in mid-January, reported net revenues of $39.1 million and EBITDA of $3.3 million, an anemic EBITDA margin of only 8%. While the company booked 2.2 million admissions to its newest riverboat complex, the win per admission was only $14. Even backing out the one-time charges, Station's Kansas City casino was in the red for its first quarter of operation. Many have said that Station's Kansas City unit, the fourth largest casino in the country, was a large gamble. Between cutthroat competition and extensive Missouri regulation the company is throwing snake eyes in Kansas City so far. It's hard to throw in the towel for Station's Kansas City operations just yet, but the first quarter was certainly disappointing.

SILICON GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SGIC)") else Response.Write("(Nasdaq: SGIC)") end if %> reported a net loss for the quarter of $0.44 per share this week. Considering the company is in the process of shipping its first slot machines ever, the loss was not unexpected. The company received final approval from the Nevada Gaming Commission to ship its slot machines in volume on March 20. Since the license was granted, the company has installed 78 of its new machines in various Station Casinos in Nevada and has received an order for an additional 50 machines from Station. The company has also placed a dozen machines at the Las Vegas Circus Circus in the past few weeks. The company is expected to lose another $0.47a share in the coming quarter according to First Call, but analysts are expecting the company to start showing a profit in 1998.

WMS INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMS)") else Response.Write("(NYSE: WMS)") end if %> reported earnings of $0.13 a share this week. The company's gaming subsidiary, which accounts for only about 7% of the company's revenue, was hit was some rather large losses during the quarter. The division's red ink tripled to approximately $3 million in the quarter. The loss is a result of a court finding the company's infringement of certain IGT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IGT)") else Response.Write("(NYSE: IGT)") end if %> patents. It was thought that the patent situation would hurt WMS's slot machine operations and these prognostications are proving to be true. However, since WMS is such a diverse company, this Fool wouldn't recommend shorting WMS simply because of this one bleeding division. The company has other profitable shall we call "non-gambling-gaming" operations in making video and pinball machines.

ACRES GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AGAM)") else Response.Write("(Nasdaq: AGAM)") end if %> reported a net loss of $0.15 per share for the first quarter. The loss was pre-announced by the company several weeks ago and has caused the stock to oscillate wildly of late. The main reason for the loss was the delay of shipments to its partner IGT of its Concept III bonusing and data collection systems. Basically, the company has ramped up production expenses to fill the orders IGT has placed but has been slow in delivering IGT was the goods. Analysts are still looking for Acres to earn $0.60 a share in 1998, mostly due to its alliance with slot machine behemoth IGT. The stock ended the week at $7 1/4.

Finally, California was in the news this week. Many of the state's Indian tribes have been protesting the state's intention to close tribal casinos in the coming weeks. "Las Vegas Style" gambling is prohibited in California, but the Indians have been using modified slot machines that pay in "credits" instead of coin to attempt to side step this law. The tribes also consider blackjack and bingo to be non-Vegas games and have been dealing such games for some time. Unless a state-Indian compact can be reached in the next week, the future of Indian gaming in California is uncertain.

Earnings For The Week...

Acres (AGAM)               ($0.15)
Aztar (AZR)                 $0.05
Boomtown (BMTN)             $0.04
Casino Magic (CMAG)         $0.10
Game Financial (GFIN)       $0.09
Hollywood Park (HWPK)      ($0.07)
Lady Luck (LUCK)            $0.04
MGM Grand (MGG)             $0.51
President Casinos (PREZ)   ($0.17)
Primadonna (PRMA)           $0.34
Rio (RHC)                  ($0.11)
Silicon Gaming (SGIC)      ($0.44)
Station (STN)              ($0.46)
Trump (DJT)                ($0.59)
WMS Industries (WMS)        $0.13

Did You Know. . .

Indiana has a $3 "head tax" for its casino boats? Since the casinos generally don't charge admission, a non-gambling patron costs the operators $3 per cruise.

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