In Spite of Fears, Macau Casinos Keep Firing on All Cylinders

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Economic volatility in China and uncertainty over regulatory changes that could hurt credit availability for gamblers in Macau are weighing on major casino operators such as Las Vegas Sands (NYSE: LVS  ) , Wynn Resorts (NASDAQ: WYNN  ) , and Melco Crown (NASDAQ: MPEL  ) lately. However, judging by recent earnings reports, the three companies continue performing remarkably well.

Las Vegas Sands is booming in Macau
Las Vegas Sands delivered an increase of 21.4% in total revenue during the first quarter of 2014, to $4.01 billion, comfortably beating analysts' expectations of $3.84 billion for the period. Adjusted net income per share grew 36.6% to $0.97, also above estimates of $0.92 per share for the quarter.

Net revenue in Singapore grew 5.1% to $835.4 million, while adjusted property EBITDA in the country increased 9.7% to $435.2 million. Performance was much weaker in Las Vegas, though, as sales fell by 7% to $382.7 million and adjusted property EBITDA declined by 29.7% to $79.7 million. The same goes for Pennsylvania, where sales fell by 4.6% to $117.2 million and adjusted property EBITDA was down 11.4% year over year to $26.5 million in the quarter.

But Macau continues performing extraordinarily well for Las Vegas Sands, and the company is reaping big benefits from its leadership position in such a lucrative growth market. Sands China delivered an explosive increase of 34.7% in sales to $2.72 billion, while adjusted property EBITDA in Macau grew 49.8% to $938 million.

The Venetian Macau was a major growth contributor for Las Vegas Sands during the quarter, with sales increasing 35.8% to $1.2 billion. Sales at Sands Cotai Central and Four Seasons Macau were also very strong, with sales increases of 40.9% and 65.8%, respectively, to reach $827.6 million and $370.0 million during the quarter.

All in all, Las Vegas Sands is generating outstanding performance in its main Macau properties, and this is producing rock-solid growth rates at the total company level.

Wynn Resorts: A VIP Macau player and a turnaround bet in Las Vegas
Wynn Resorts delivered better than expected sales and earnings during the first quarter of the year. Total sales increased by 10% to $1.51 billion versus the $1.49 billion expected by analysts, while earnings per share grew 14.3% to $2.32 versus the $2.07 per share forecast on average by analysts.

Like Las Vegas Sands, Wynn Resorts is reporting lackluster performance in Las Vegas, where net revenues decreased by 1.5% to $380.9 million.

However, it's important to note that founder and CEO Stephen Wynn believes the situation is finally turning around in Las Vegas, and this could provide a major boost to profitability in the coming quarters: "I must say that this year, for the first time, I'm willing to say that I see Las Vegas getting a footing that it hasn't had quite as clearly in the past."

Revenues in Macau grew 14.2% to $1.13 billion versus $992.1 million in the first quarter of 2013, while adjusted property EBITDA in the region increased by 16.2% to $384.3 million.

Even if Wynn Resorts is not growing as rapidly as Las Vegas Sands or Melco Crown in Macau, the company is still generating solid performance in the region thanks to its leading position in the VIP segment. Besides, a turnaround in Las Vegas could be a big positive for Wynn Resorts in the medium term.

Mass-market growth for Melco Crown
Melco Crown delivered an increase of 19% in sales during the first quarter of 2014 to $1.36 billion; the number was roughly in line with forecasts. Earnings per share came in above expectations, though, at $0.45 per share versus $0.41 per share forecast on average by analysts.

Adjusted property EBITDA increased by 31% to $387.5 million versus $249.9 million during the same quarter in the prior year. Adjusted EBITDA margin expanded by 280 basis points to 28.5% of revenues, due mainly to a greater proportion of sales coming from the higher-margin mass market.

Revenues at City of Dreams increased by an impressive 28% to $1.07 billion during the quarter, while adjusted EBITDA jumped by an even stronger 38% to $341.4 million.

Altira Macau, which is more focused on the VIP segment, delivered subpar performance, though, as sales declined by 13% to 229.8 million and adjusted EBITDA fell by the same percentage, to $34.8 million in the quarter.

Even if the VIP business is showing some weakness, growing mass-market revenues bode well in terms of overall growth and profitability for Melco Crown over the coming quarters.

Foolish takeaway
Considering the latest earnings reports from Las Vegas Sands, Wynn Resorts, and Melco Crown, casino operators with big exposure to Macau are still performing remarkably well in spite of fears over an economic slowdown in China or reduced credit availability for gamblers. They say the house always wins, and these casinos keep winning, even under challenging conditions.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 15, 2014, at 5:27 PM, berg80 wrote:

    Just a quick comment on MPEL's performance relative to VIP. It should be noted that VIP tables were shifted out of Altria to COD in order to increase the higher margin mass business. Which is not to say it's all kittens and puppies with VIP, but there is a strategy behind the drop in roll and it's clearly working to MPEL's economic benefit.

    On the whole your article displays far more balance than the constant doom and gloom of your media compatriots.

  • Report this Comment On May 19, 2014, at 12:08 PM, spokanimal wrote:

    Andre's; Please stop writing articles about the financial performance of gaming companies without discussing it in terms of "normalized" earnings.

    While Las Vegas Sands indeed improved it's EPS from 72 cents in the 4th quarter to 96 cents in the 1st quarter, once you adjust for the company playing substantially unlucky in Q4, and substantial lucky in Q1 (we commonly refer to that as a company's "hold percentage", Andre's)...

    ... normalized earnings for LVS were 87 cents in Q4 and also 87 cents in Q1.


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Andrés Cardenal

Andres Cardenal, CFA is a tenacious researcher of the best investment opportunities around the world. Andres is an economist and CFA Charterholder living in Buenos Aires, Argentina. Naturally flavored. Follow me on Twitter for more investment ideas:

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