The first week of Feb 2015 remained quite mixed for the gambling industry. While Wynn Resorts (NASDAQ:WYNN) posted weak fourth quarter 2014 and full-year results, Iao Kun Group (NASDAQ:IKGH) reported weak Rolling Chip Turnover for the month of January, marking the fourth consecutive monthly decline.
The reason for both the downsides is the same — a weak Macau business. Wynn Resorts earns a better part of its revenues from Macau while Iao Kun Group Holding is engaged in the promotion of five major luxury VIP gaming facilities in Macau. Therefore, sluggish economic conditions in Macau are adversely impacting the companies operating in the region.
Amid the current challenging environment, casino companies seem to be busy restructuring or developing their portfolio to maintain their positions. After a few weeks of filing bankruptcy for one of its units, Caesars Entertainment (NASDAQ:CZR) announced management changes and is set to replace its Chief Executive Officer (CEO). Melco Crown Entertainment (NASDAQ:MPEL) has launched its new integrated casino resort, City of Dreams Manila. (Read last development: Gambling Stock Round Up for Feb 2, 2015)
Recap of the Week’s Important Stories:
1. Wynn Resorts posted disappointing fourth quarter 2014 and full-year results. Quarterly adjusted earnings of $1.20 per share plunged 47% year over year. It also missed the Zacks Consensus Estimate of $1.44 by 16.7%. The downside reflects a significant decline in revenues.
Not surprisingly, Wynn Resorts’ revenues of $1.14 billion also missed the consensus mark of $1.24 billion by 8%. Revenues fell 25% year over year, owing to a sluggish performance in Macau as well as Las Vegas. Shares of the company fell 4.4% in aftermarket trading. (Read: Wynn Resorts Lags Q4 Earnings, Revenues on Macau Slump)
2. Iao Kun Group Holding once again posted weak Rolling Chip Turnover for the month of Jan 2015. Rolling Chip Turnover is used by casinos to measure the volume of VIP business transacted and represents the aggregate amount of non-negotiable chips players purchase. Iao Kun Group’s Rolling Chip Turnover of $0.81 billion fell 37% year over year, marking the fourth consecutive monthly decline. Rolling Chip Turnover had declined 27%, 30% and 48% in Oct, Nov and Dec 2014, respectively. Win rate for the month of Jan 2015 was 3.76%.
3. Caesar’s Entertainment’s Chief Executive Officer (CEO) Gary Love man will resign from his position and end his term on Jun 30, 2015. However, he will continue to be the chairman of the company. From Jul 1, 2015, Mark Frissora would take over as the CEO of the company. Mark has earlier served a car rental company, Hertz Global Holdings, Inc. and auto-parts maker Tenneco, Inc.
This management change comes a few weeks after Caesars Entertainment Operating Company, Inc. (CEOC), a subsidiary of Caesars Entertainment voluntarily filed for reorganization under Chapter 11 of the United States Bankruptcy Code. (Read: Caesars Entertainment's Subsidiary Files Bankruptcy)
Over the last few quarters, this debt-ridden company has been in talks with its creditors to restructure a portion of its long-term debt. It has been working constructively with creditors to deleverage its most indebted unit and is planning a reorganization that would create a sustainable capital structure. Caesars has not been able to post profits for a very long time, failing to recover from its debt load since the recession.
4. In order to cash in on a fast growing Philippine economy and increased tourism, Melco Crown Entertainment launched its long-awaited new integrated casino resort, City of Dreams Manila. City of Dreams Manila is a leisure, gaming and entertainment destination resort located at Entertainment City, Manila, Philippines. It is a part of the company’s plans to have casinos across Asia.
This $1 billion casino and entertainment resort features six hotel towers, including the approximately 260-room Crown Towers hotel and the 321-room Nobu Hotel Manila, as well as numerous specialty restaurants and bars, gaming facilities and a multi-level car park. City of Dreams Manila also features three distinctive entertainment venues, including Manila’s first branded Family Entertainment Center, a live performance central lounge inside the casino and a nightclub.
Share Price Performance
Weak Macau revenues for the month of January didn’t impact shares of the companies operating in the region much over the last five trading days, possibly because the rate of decline moderated from 30% in December. Gambling revenues in Macau for the month of January declined 17.4%, marking the eighth consecutive monthly decline since Jun 2014 and the fourth consecutive monthly double-digit decline. The slump reflects a nationwide crackdown on corruption in China.
Share prices of most of the companies increased over the last five trading sessions with the highest increase of 4.6% recorded by Melco Crown.
However, this sudden increase cannot be regarded as a turnaround. We prefer to wait for more substantial and consistent improvement as the situation in Macau is not expected to improve in the near term. However, share price of Wynn Resorts fell 1.2% last week, owing to lackluster fourth quarter results reported by the company.
Over the last six months, share price of most of the gambling stocks lost value with Caesars Acquisition (NASDAQ:CACQ) witnessing the maximum decline of 29% followed by a decline of 26% recorded by Wynn Resorts. However, Boyd Gaming (BYD) gained 38.1% over the same time frame.
What’s Next in the Gambling World?
Pinnacle Entertainment (NYSE:PNK) with a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00% and Boyd Gaming (NYSE:BYD) with a Zacks Rank #2 and ESP of +16.67% is scheduled to report fourth quarter 2014 and full-year results on Feb 12, 2015.
We note that gambling stocks have oscillated between gains and losses in recent sessions and investors can expect this volatile movement to continue in the coming days as well.