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5 Things Las Vegas Sands Management Wants You to Know

By Dan Caplinger - Sep 2, 2015 at 1:22PM

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Macau keeps weighing on the casino giant, but it's faring better than some of its peers. Find out why.

Las Vegas Sands CEO Sheldon Adelson. Source: Flickr courtesy East Coast Gambler.

One of the first companies to see the potential of Macau was Las Vegas Sands (LVS 0.60%), and it has turned the Asian gaming capital into a gold mine for its long-term investors. Yet recently, Macau has fallen out of favor, and that has left Las Vegas Sands in a difficult situation. Nevertheless, CEO Sheldon Adelson and his executive team continue to navigate Sands through turbulent waters, and they think that in the long run the casino giant is in a good position to benefit from the trends in the gaming industry. Let's take a closer look at a few things that Las Vegas Sands CEO Sheldon Adelson recently said about the company's prospects going forward.

"[I]t was not surprising to see our company weather this cyclical downturn in Macau better than the industry overall."

No one can dispute that weakness in Macau has been a huge blow to Las Vegas Sands. Yet Adelson notes that the company actually saw its market share in Macau rise during the quarter, nearly the 25% mark and hitting its best levels since early 2009. Moreover, even as revenue has declined, Sands has managed to boost its profit margins and operating earnings on a quarter-over-quarter basis, and Adelson credited much of those gains to the company's long-term approach, building early and aggressively and then looking for ways to encourage critical mass and build up long-term tourism opportunities.

"It has always been clear to me that our unique MICE-based [meetings, incentive, convention, and exhibition] Integrated Resort business model positively differentiates us from our competitors."

Adelson prides himself on keeping Las Vegas Sands as a resort company rather than just a casino operator. By emphasizing the value of appealing to the convention and exhibition business, Sands pulls in customers that vanilla gambling operations would miss out on, and Adelson's approach toward encouraging retail mall development and other ancillary revenue opportunities makes sure that Sands gets as much of its customers' money as possible.

That emphasis will only grow with the completion of future projects, with its Parisian resort in Macau helping to give Sands four interconnected resorts with 840 stores in four separate malls and a huge number of meeting, exhibition, and performance venues. Adelson sees himself as a pioneer, and he will continue to believe in Macau even during its troubled times.

"We remain committed to the maintenance of our generous recurring dividend programs, and we remain committed to increasing those recurring dividends in the future as our cash flow grows."

Some casino operators have had to look hard at their dividend policies in light of the falling revenue in Macau, and many investors had feared that Sands might consider cash-conservation strategies like a dividend cut. Yet even with a dividend yield approaching 5%, Adelson's comments suggest that a lower dividend is the last thing on Sands' agenda. Moreover, with the company having spent $65 million on stock buybacks, Sands appears to be taking advantage of the fear in the industry to build shareholder value over the long haul once the Macau market bottoms out.

"There's a lot of conjecture about a new development opportunity in an emerging market like Japan or somewhere else in the Far East. We're keeping our powder dry so that we could go after that aggressively and we could build what it takes to win the day."

Even with the cyclical downturn in Macau, many speculate that other countries in the Asia-Pacific region will adopt casino gambling in order to attract resorts. Adelson sees that as a huge opportunity, and he's positioning Las Vegas Sands to be able to borrow capital effectively in order to cover anticipated capital expenditures from such a project. Given interest from places like Korea, Vietnam, and Thailand as well as Japan, Sands continues to believe it has the edge in having established itself as a first-mover in key markets.

"The other operators really are having difficulty and challenges confronting this situation, the challenges for all of us in Macau. ... The reality is that our experience tells us what to do when other people are confronting experiences they've never confronted before."

Having been a pioneer in Macau means that Las Vegas Sands has a longer history in considering the rise and fall of the gaming market there. Adelson in particular pointed to Sands' ability to keep hotel pricing up even as competitors essentially give their rooms away, as they've been unable to sell their available hotel space. By maintaining higher occupancy and revenue metrics, Sands demonstrates its expertise and makes its case for why it's likely to survive even if other players in the industry start to fail.

Las Vegas Sands has seen its stock suffer along with other casino giants, but its business prospects have held up fairly well. With its integrated approach, Sands has every opportunity to survive the Macau downturn healthier than ever if it can continue executing on its strategy of outperforming its competitors in a tough market environment.

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