The market wasn't kind to Las Vegas Sands (LVS +0.04%) last week, pushing shares 3% lower after second-quarter results were released. Revenue rose 6.2% to $3.30 billion and net income was up 5.8% to $676 million, but bad luck dragged both numbers lower than they could have been.
As competition from new resorts from Wynn Resorts and MGM Resorts heats up, older resorts in Macau have been taking a beating. But Las Vegas Sands continues to perform well, and the company says it's gaining market share. Despite the market's reaction, this was arguably the company's best earnings report in years given the competitive backdrop, and shares might be a steal now for long-term investors.
Image source: Las Vegas Sands.
Macau is surprisingly strong
Macau has been a great market for gaming companies in 2018, with gaming revenue up 17.2% to $9.2 billion in the second quarter and up 18.9% for the year. It's the 17.2% number that should be the bar all second quarter gaming numbers are compared against for Macau's gaming companies.
If we look at Las Vegas Sands' gaming volume growth it gives us an idea how much gambling is taking place at the company's casinos, before accounting for any good or bad luck. You can see that overall the volume growth for rolling chips, a measure of VIP play, is higher than the growth of overall market, and non-rolling chips, which measures mass market play, showed strong growth at the company's two biggest resorts.
| Resort | Rolling Chip Growth | Non-Rolling Chip Growth |
| Venetian Macau | 44.3% | 32.4% |
| Sands Cotai Central | 2.8% | 19.6% |
| The Parisian Macau | 19.1% | 8.6% |
| Four Seasons Macau | 9.6% | 7.8% |
| Sands Macau | 41.9% | 5.3% |
Source: Las Vegas Sands Q2 2018 earnings report.
These are extremely strong results when you consider than neighboring City of Dreams from Melco Resorts had a 13.9% drop in rolling chip volume and just a 10.2% increase in non-rolling chip volume. Las Vegas Sands outperformed that by a wide margin.
The reason results weren't even better is because bad luck at the casino had a negative impact on Las Vegas Sands results. Management said hold-normalized adjusted net income would have been up 21.3% to $597 million and hold-normalized property EBITDA would have been up 11.6% to $1.23 billion, which are great growth numbers in a competitive environment.
Struggles outside of Macau
What was less impressive for Las Vegas Sands was results in Singapore and Las Vegas. Rolling chip volume at Marina Bay Sands in Singapore fell 32.6% to $5.87 billion and overall revenue was down 15.5% to $705 million. As a result, adjusted property EBITDA fell 25.2% to $368 million. Keep in mind that $368 million of EBITDA from a single resort in one quarter is still impressive, but it's down significantly from a year ago.
In Las Vegas, play at table games declined 2.8%, but bad luck led to a 25.9% drop in casino revenue. Luckily, strong room and food and beverage growth made up for the casino losses and drove a 2.6% increase in revenue for the quarter. Adjusted EBITDA was down 2.5% to $77 million, but that should recover as luck normalizes in the future.
Cash returns continue
I would argue that the best reason to own Las Vegas Sands stock today is the money being returned to shareholders. In the second quarter alone the company bought back $100 million of stock and paid a $0.75 per share dividend, a yield of 4.2% at today's stock price.
The outperformance of Las Vegas Sands in Macau shows the strength of the company and solidifies its ability to continue returning cash to shareholders. Any growth that comes the company's way is gravy as far as I'm concerned.
