Just How Bad Was Las Vegas Sands' Quarter?

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Las Vegas Sands' (NYSE: LVS  ) first-quarter results certainly didn't look all that good. On a GAAP basis, the gaming company reported a $36 million net loss -- roughly three times the size of its loss last year. The loss stemmed from rising costs stacked on top of a flat top line. And even though borrowing costs fell dramatically from last year, $71 million in interest payments were enough to drag the $36 million in operating profit under water.

We've already seen reports from MGM Mirage (NYSE: MGM  ) and Wynn (Nasdaq: WYNN  ) (here and here), as well as a bunch of the smaller non-Vegas players such as Ameristar (Nasdaq: ASCA  ) , Pinnacle (NYSE: PNK  ) , and Penn National (Nasdaq: PENN  ) . So how does Las Vegas Sands stack up? To keep it short and sweet, I'd say "pretty well."

MGM is at the bottom of the heap for me. Yes, yes, I know that its stock has been a tremendous performer over the past few months, and that it has CityCenter still on the horizon. However, it also has the weakest financial position of the major public players and has a lot of Las Vegas properties that have been marginalized by recent Strip development, and will be further marginalized when CityCenter launches. And, hey, there's a reason that Dubai World was excited to make CityCenter remote from any MGM bankruptcy.

But we're talking Las Vegas Sands here, not MGM. So what's the difference? A major part of the difference is that Sands is far less levered to The Las Vegas Strip than MGM. Over 65% of Sands' adjusted EBITDA from its properties came from its Macau properties in China, and overall, Macau seems to have been holding up better than The Strip. Plus, the properties on The Strip that it does own -- The Venetian and The Palazzo -- are very high quality.

And Sands is only going to get more diversified geographically. The company has two projects under construction -- Marina Bay Sands in Singapore and Sands Bethlehem in Bethlehem, Pa.

But right now, financial strength is what we need to focus on with the gaming companies. After all, it won't mean squat to equity investors how well the casino properties do if they get wiped out in bankruptcy. For now, Sands appears to be in relatively good position.

Although it carries a hulking $10.4 billion debt load, it has $2.8 billion in cash on hand. Interest coverage based on EBITDA was a somewhat tight 2.5, though interest coverage based on adjusted EBITDA -- which excludes pre-opening expenses -- was a downright comfortable 3.2.

The Venetian is hands down my favorite poker room on The Strip, and if Las Vegas Sands continues to plug away like this, it could move up the list to be one of my favorite gaming stocks.

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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool's disclosure policy can turn sand into glass.

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  • Report this Comment On May 06, 2009, at 9:34 PM, LVSGURU wrote:

    $36 Million Loss? Not Quite.

    Add back Depreciation of $139 million and we're actually talking about a $103 million profit. (Depreciation is not a real loss - only a tool for reducing your income tax bill).

    Also, add back $45 million for pre-opening expenses for Bethworks Pennsylvania and Marina Bay Sands

    which was expensed in 2009 Q1 but will only begin to be adding revenue between May 22, 2009 and January, 2010,

    Finally, once Bethworks and Marina Bay Sands start operations, they'll begin to contribute additional net income between $400 million and $900 million annually - this estimate comes from analysts, and LVS says it may even be more.

    So, we're looking at a company with $2.9 billion in the

    bank, currently earning over $100 million in cash flow per quarter after expenses, and potentially earning another $1 billion from Casino Properties that will be

    opening in the next year - and this is in a depressed economy. And if the economy improves, cash flow

    will be even greater.

    Additional Cash Flow and Sales of some assets in the coming year should pave the path for construction to restart on Parcels 3, 5 and 6 in Macau. Sure, there are potential pitfalls ahead, but

    the possibilities for great profits are realistic and

    provide the likely potential for a windfall for LVS stockholders who hold on tight while LVS fluctuates wildly up and down but mostly uwards in the coming


  • Report this Comment On May 06, 2009, at 10:29 PM, fluidtherapy wrote:

    You just made me feel better about my losses today.

  • Report this Comment On May 06, 2009, at 10:41 PM, TMFKopp wrote:


    "Add back Depreciation of $139 million and we're actually talking about a $103 million profit. (Depreciation is not a real loss - only a tool for reducing your income tax bill)."

    Careful now... capital expenditures don't show up on the income statement, so if you declare depreciation to be meaningless you've suddenly allowed casino operators to spend billions building properties and never have to recognize any of the cost of said properties. And that's not to mention the fact that that "fictitious" cost of depreciation leads to the real life need for additional capex to upgrade and revamp aging properties.

    Allow me to share something that Steve Wynn had to say about EBITDA and, specifically, depreciation:

    "We report and talk about these EBITDA numbers with our chest puffed out as far as we can get it as an industry. I suppose it tells you how much money you can afford to pay in interest. But the public needs to understand that the profitability, the real profitability of these businesses are much, much less than these puffy EBITDA numbers. Interest expense is very large. And depreciation, I know office building guys and shopping center guys and apartment guys, they get to spend part of the depreciation. But, believe me, in my 40-year history and in the history of every other gaming company here, Kerkorian would agree with me. We spend depreciation. It is a real expense. And when you take the profitability of a hotel like the Venetian or Wynn or Bellagio or any of us it’s a much smaller number when you subtract depreciation and interest. And amortization. We have to pay back the people who lend us the money eventually. It’s a much smaller number. But I know the Wall Street folks, you all like to talk about EBITDA."

    As Wynn notes, EBITDA is a useful number for eyeballing cash flow for interest coverage purposes. But as for a true measure of profitability, not so much.

    Then why put up with a gaming company that's reporting a loss? Because it owns some really good income producing assets. Given some amount of economic turnaround, combined with some time to use cash flow to pay down some of that huge debt load and we could see some significant true profitability from the casino operators.


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