By any measure, fiscal 2005 has been a year to remember for MGM Mirage (NYSE:MGM). The world's No. 2 casino operator closed an historic $7.3 billion merger, survived a devastating hurricane, began construction on a $1 billion waterfront resort in Macau, and unveiled plans for the massive Project CityCenter development -- an ambitious undertaking, even by Las Vegas standards.
This morning, the company put the finishing touches on 2005 by posting record fourth-quarter adjusted earnings of $0.35 per share. That represents a 25% improvement over last year's total. After a rare miss last quarter, the company managed to top analysts' expectations once again. Meanwhile, revenues climbed 65% for the period to reach $1.8 billion.
Naturally, those numbers are skewed upward thanks to the addition of former Mandalay casinos, which include a trio of properties at the south end of the Las Vegas Strip -- Luxor, Excalibur, and Mandalay Bay. Management has done a good job of filling those new resorts with more visitors. In turn, that has boosted revenues not only on the casino floor, but also in the showrooms, nightclubs, shops, and restaurants.
At the same time, MGM enjoyed solid results at its own core properties. Along the Strip, average daily room rates ticked up to $163. Coupled with a 93% occupancy rate, that helped revenues per available room (RevPAR) rise 8%, topping the firm's 6% internal target. The gain marks the tenth consecutive quarterly increase for that key metric. However, it's worth noting that there have been signs of deceleration; until recently, the company consistently posted double-digit year-over-year increases.
Looking at RevPAR in isolation can be somewhat misleading, though, particularly in this case. Recent expansion at Bellagio and MGM Grand has lifted capacity by 11%; that's 160,000 available room nights per quarter. As a result, revenue growth on a per-room basis slipped to 8% from 13% in last year's fourth quarter. However, it may not be the best gauge, since the higher room count helped overall hotel revenues soar 111% (20% on a same-store basis) to $465 million.
As the best barometer for the overall performance of the company, those numbers are encouraging. Not only is the hotel business the largest revenue producer aside from the casino (representing one-fourth of the total), but it is also the most profitable. More importantly, all those guests don't leave their wallets in the room; healthy results on the hotel side usually lead to stronger table volumes, increased food and beverage sales, and more.
While other high-end players such as Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS) have seen their shares climb roughly 40% and 50%, respectively, since last July, MGM shares have actually lost ground. Fears of pricing pressure and margin contraction have helped hold the stock in check.
Today's results will not remove those concerns, but they should help quiet them. Room rates grew at a healthy double-digit clip. With solid EBITDA of $562 million, property-level EBITDA margins remained steady at 33% -- though still below the 42% of industry leader Harrah's (NYSE:HET).
MGM shareholders have not exactly had a run of good luck lately. However, the integration with Mandalay is proceeding smoothly (already generating $135 million in synergies, according to the conference call), outstanding debt has been substantially paid down, and recent investments at MGM and Bellagio have helped make those two properties the most profitable on the Strip.
With several high-profile projects to look forward to, sooner or later, the cards should begin to fall MGM's way.
Ante up for further Foolishness:
Fool contributor Nathan Slaughter is looking forward to some blackjack this weekend. He holds no financial position in any of the companies mentioned.
