On Sept. 28, just before the end of the quarter, the riverboat casino operator cut its third-quarter and full-year guidance, citing construction-related business disruption in the Black Hawk, Colo., market and excessive competition-related marketing expenses in the St. Louis market. But on Thursday, the company posted third-quarter results that mostly topped the high end of its revised guidance. It also reupped its full-year outlook, thanks largely to Hurricane Katrina and construction disruption for a competitor in the Council Bluffs, Iowa market.
For the third quarter, Ameristar grew net revenue 10.6% to $238.6 million, with half of the gain attributable to the acquisition of the Mountain High Casino in Black Hawk last December. Meanwhile, operating income rose slightly to $40.5 million, and EBITDA (earnings before interest, taxes, depreciation, and amortization) increased 4.4% to $61.8 million. Both figures beat the company's prior forecast. Net income slipped to $0.28 per share from $0.30 in last year's quarter; that matched the high end of guidance but surpassed the $0.26-per-share analyst estimate.
In the Vicksburg, Miss., market, Ameristar's revenues grew 12% to $29.5 million. While the company increased its dominating market share by 2.4 percentage points to 47.4%, Ameristar Vicksburg also got a boost as Hurricane Katrina -- which left casino operators such as MGM Mirage
Ameristar Council Bluffs -- which competes with a riverboat and racino (racetrack with slots) both owned by Harrah's -- increased its market-leading share by 1.6 percentage points to 43%, thanks largely to construction disruption at Harrah's Bluffs Run racino. Harrah's is currently working on an $85 million expansion and rebranding project at the property, which is expected to be complete by the end of the first quarter.
In its earnings release, the company also announced that it would not pursue one of the two open slot-parlor licenses in the Philadelphia market. The company felt that the city's prohibitive gaming tax, greater than 54% of revenues, would not produce a sufficient return on investment. Ameristar had previously planned an extensive project involving capital expenditures up to $500 million.
However, the company has increased the scope of its Black Hawk project, expanding the planned hotel from 400 rooms to 537. Capital projects in progress in Black Hawk, St. Louis, and Vicksburg now total $590 million.
From previous conference calls, we know that Ameristar is particularly value-conscious and would rather reinvest in its current properties at attractive rates than risk overpaying for new opportunities. This appears to be its reasoning on Philadelphia. That may be bad news for the city; I believe that, based on the extensive research done by the city's advisory task force for this purpose, an Ameristar casino at its potential site along the North Delaware River, along with a Trump
That Ameristar will not pursue the Philadelphia license -- at least not under current conditions -- is something of a disappointment. Based on performance projections ($350 million in revenue, $100 million in annual EBITDA, and $550 million initial investment), the probability that the company would receive the license, and discounting to present value, I had assigned a value of $1 to $2 per share to the stock. That said, the company clearly does not see value here, and not pursuing the license is far better than not seeing value and pushing forward anyway.
Smart banking bets
On a positive note, Ameristar also announced that it was refinancing to secure lower interest rates on both its debt and the capital used to finance the company's construction projects. Ameristar's new senior secured facilities include a $400 million seven-year loan and a five-year revolving credit facility with borrowing capacity of up to $800 million. The refinancing is expected to be completed sometime in November.
Lady Luck smiling in the short term
At any rate, Ameristar continues to hold leading positions in every market in which it competes, except the construction project in Black Hawk. The company will see competition pick up in Council Bluffs when Harrah's project is complete. But with some help from Katrina, the company's short-term outlook has improved from just a little over a month ago, and partially offsets the loss in projected value related to the Philadelphia opportunity.
For the fourth quarter, Ameristar expects operating income of $39 million to $41 million, EBITDA of $61 million to $63 million, and earnings of $0.24 to $0.26 per share. The current analyst estimate calls for earnings of $0.21 per share.
For the full year, Ameristar increased its projected operating income to between $168 million and $170 million (up from $162 million to $164 million). Its EBITDA forecast now ranges from $253 million to $255 million (up from $247 million to $249 million). The company is also expecting EPS of $1.15 to $1.17 (up from $1.08 to $1.11).